How to Stop Paying Unsecured Debt

It's easy to stop paying unsecured debt, but that doesn't mean the debt vanishes. Some people make a strategic financial decision to stop paying their unsecured debt in hopes of eventually settling the debt for less than the full balance. That can be a tricky proposition, although The New York Times, in a Jan. 2, 2009 story by Eric Dash, reported that some banks will settle delinquent unsecured debt for as little as 30 percent of the balance. So-called debt settlement firms use this technique to pay off debt, but the Federal Trade Commission, while not endorsing the strategy, says you should engage in your own debt settlement.

Instructions

1

Gather your credit card and billing statements. Choose which accounts you wish to stop paying and place them in a folder.

2

Stop making payments. The collection calls will begin after you fall one or two months behind and will accelerate greatly after that. Credit card companies and other creditors generally will give up on collecting from you after about six months, and will close your account, list it as being charged-off and sell the balance to a debt collector, sometimes for as little as pennies on the dollar. Before taking that action, your creditor may agree to a settlement.

3

Contact your creditor after you have fallen four months behind and ask to settle by paying less than the full balance. You can do this by phone or by mail, although telephone conversations sometimes yield faster results. Start by offering 30 percent of the balance (a 70 percent savings for you) and keep negotiating until you have a deal. Keep notes of your conversation or place copies of your letter in your folder. If necessary, negotiate over several weeks, but not past the six-month mark. Alternatively, you could simply stop paying your bills and allow the accounts to be sold to debt collectors. But that could result in lawsuits and possible court judgments if you never attempt to resolve the debts.