Consumers have been paying off their credit card debt steadily through the last part of 2009 continuing into 2011, dropping their total credit card indebtedness by $1.6 billion in February 2011, according to the Federal Reserve Bank. Despite these reductions in credit card debt, people are still finding reasons not to pay on their credit cards, even though doing this will damage their credit rating.
Loss of Income
Most people who don't pay their credit cards can't because they do not have the money to pay them. You may have suffered a job loss or a reduction in hours that makes it impossible to pay your bills. You may be forced to purchase food or pay utility bills before you can pay credit card bills. This would generally be a wise decision, because most consider these expenses a priority and more important than paying credit card bills.
Paying the Mortgage Instead
Most people place a high priority on paying their housing-related costs. Therefore, people may not pay their credit cards in order to have the money to pay their mortgage payment or rent instead. Ironically, some recent statistics show that the exact opposite may be taking place with many consumers. A TransUnion study showed in the third quarter of 2009, 6.6 percent of a random sample of more than 27 million consumers were delinquent on their mortgage but paid their credit cards on time. This increased from 4.3 percent in the first quarter of 2008. Even though people's payment habits may be changing, it is still a best practice to pay your home mortgage before credit card payments.
Negotiating a Settlement
If you are in serious debt trouble and you have more debt than you can ever realistically pay, you may wish to negotiate a settlement with your credit card companies. Often, these debts can be settled for a small percentage of what you owe if you are past due. The credit card companies do not have any incentive to settle a debt for less than what is owed if they believe the debt will be paid in full. You may stop paying on your credit cards so that they will become past due and allow you to work a settlement with the credit companies.
Debt Elimination Scams
People may stop paying credit cards because they say it is illegal for banks to loan money and collect interest, as is said in some debt elimination programs. These programs are similar to scams that have been used with mortgage loans, offering to take advantage of loopholes in the system and allow you, when the bank sues you, to have the court rule that your debt is illegal and you do not have to pay it. The U.S. Treasury has said that these schemes are "worthless" and "using such fictitious instruments with the intent to discharge valid debts may be subject to criminal prosecution."
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