It’s a question that I think a lot of people, buried in debt, have, and so I thought I’d try to answer that.

Now, first, let me get right out there, that I am not encouraging or recommending that anyone stops paying their credit cards (for starters, everyone’s situation is different, and what might be the best of bad options for one, might be completely unnecessary for another), and if you go that route, I’m definitely not suggesting you do nothing and pretend you don’t owe any money.  If you step out of reality like that, eventually, something bad will happen, and you’ll wish you had been proactive about paying off your debts.

But I just thought I’d put it out there — if you stop paying a credit card, or several credit cards, what actually happens?  After all, one of the arguments my co-author Chris Balish and I make in our book is that many people, in an effort to protect their credit score, end up making stupid or at least questionable financial decisions (like making credit card monthly payments instead of paying your monthly mortgage).  So if you’re tapped out and can’t possibly pay everything you owe, what happens if you, say, stop paying one of your credit cards?

OK, here we go.  Hang on.

At first, nothing will happen. That’s important to note.  No angry phone calls, and the Earth won’t crack open, with you falling in.  You have some breathing room at first, to either ultimately make that payment anyway, or to try and raise some money to pay your bill.

Then the phone calls will start. It varies from company to company, of course, but start to expect, after about two weeks past the due date and definitely a month after the due date, to start getting phone calls from your credit card company.  The best scenario, if you will be able to pay your debt soon, is to pick up the phone and work something out.  Even better, call them before they call you and stay in touch with them.  Literally, pretend your Visa or Mastercard is your mother, and pay them a few courtesy calls and offer them some reminders from time to time that you’re going to pay, you’re just in a rough patch at the moment.  They may not truly understand to the point of waiving a payment or fee, but they’ll be nice to you, and if they have a way to work something out, they will.  But if you can’t make a payment, and the calls keep coming, and the calls are rather unpleasant, there is always caller ID, and there is no law that says you have to say hello to every caller when the phone rings.

The late fees and interest will begin to go up, as your credit score goes down. Yes, there are definitely consequences to not paying a bill.  But here’s what won’t happen.  You won’t be thrown into jail for not paying that bill, at least not in the United States.  Nobody will come to your home to yell at you in front of your kids.  Nobody will come to your door, brandishing a baseball bat and threatening to break your knee caps.  The worst that will happen is…

Your credit card company will sell your debt to a collection agency. After about six months, expect your credit card to sell your debt, and then, boy, those phone calls will come, and some of the calls will come from people who are extremely insistent that you pay, and that you pay them what you owe now.  They may even, in rare cases, call your neighbors or family members trying to look for you, but they can’t actually tell anyone, other than your spouse, that you owe money.  The Fair Debt Collection Practices Act mandates that.  And in case any of these collectors have your bank account information, you should know that they also aren’t allowed to make any withdrawals from your bank account without your consent.  If you aren’t paying several credit cards at once, then expect these phone calls to multiply, of course.  This period of your life may be very unpleasant, unless you literally pull the phone cord out of the wall.

Eventually, expect to be sued. It may not happen, but they have every right to sue you, and if your debt is large enough, your credit card company may try this route instead of selling your debt to a collection agency.  I’m going to make a guess that, if you aren’t paying debts and aren’t communicating with your the company you owe money to, you’re going to be sued anywhere from six to eight months after the day you stopped making your payments.  Either way, unless your debt is pretty insignificant, expect to have your day in court.  Not that it has to come to that.  This may be the point to declare bankruptcy, if you know you have no hope of ever paying these debts off, in which case, you won’t end up going to court (really, you won’t, but consult a bankruptcy attorney, who will know far more about this), or if you believe you can pay them off, by all means, call your credit card company or debt collector and start working something out.  They don’t want to go to court any more than you do, really.

Expect–if you go to court and especially if you don’t show up–to have your wages garnished. If you go to court and fight your debt, and you lose, your wages will be garnished (as in, a portion of your salary never makes it to your bank account but goes directly to your debtor), and in that case, at least you tried to make a judge see your point of view.  You can feel good about that.  If you didn’t go to court and just let this happen, it’s like not voting and then griping about the person who was elected into office:  you have no credibility to complain.

So, as you can see, I don’t endorse the idea of anyone walking away from their debts and hoping everything goes away.  It won’t.  But if you know what’s likely to come down the path, and you can see that the end game, while extremely unpleasant, doesn’t involve bodily harm or prison time, maybe it’ll help you to know that you probably have six to 10 months before the judge’s gavel comes down and he or she makes a decision.  So, yes, paying that credit card debt is important, but can you hold off without fearing the worst while you instead pay your water or electricity bill, or make your car payment?  Certainly.  You have nothing to fear by holding off, at least nothing to fear at the moment.  While you may not currently be in the position to buy anything, you can, initially, buy some time.

With a mortgage, you may start getting phone calls early but you probably have about 45 days from your due date before you’re likely to get that first letter indicating that your mortgage company is irked that you haven’t sent in your payment.  You probably have 90 to 120 days from that due date, however, until the foreclosure proceedings start to kick in.  But catching up on one or two or three months when you’re behind on your mortgage is so difficult that, again, I’m certainly not

We all make choices when we’re deep in debt, and because our options start getting limited when we’re shelling out, say, half of our income to debt, rather than spending it on groceries, clothes for the kids, a vacation, a savings account or whatever you’d rather be spending your hard earned money on, we tend to make some pretty bad choices.  I know I did when I was buried in thousands of dollars of credit card debt, personal loan debt, back taxes, student loans and just about every other debt imaginable.

So while this post may be just telling you what you already know, some of you out there may be considering making choices that seem like a reasonable way to alleviate your financial pain but are really a red flag, indicating that your financial picture is going to get worse.  So in case it helps, these following scenarios are red flags that you’re in deep debt trouble, possibly worse than you realize.

You’re paying your credit card debt before your mortgage. I’ve probably written about this in this blog, and I know I mention this phenomenon in our book Living Well with Bad Credit, and, sure this is a painfully obvious sign that things are bad, but CNNMoney.com recently had a story about how frequently this is still happening, despite many economists saying that the recession is over, and so I think it’s worth mentioning.  If you’re putting your credit card debt as a priority over your mortgage, that’s a very bad sign.  Take it from me.  I used to do this and almost lost my house thanks to that strategy.  If you can’t quite pay your mortgage, frankly, I’d put the money that you’re tempted to use for the credit cards, into another account, and keep that there in reserve, which you’ll use to pay the mortgage when you can.  I realize credit cards, as long as you’re not maxed out and can use them, offer a financial lifeline that a mortgage (unless you’re using a home equity loan like an ATM) doesn’t offer.  But, remember, a house offers you shelter.  Hold your credit cards over your head in a rainstorm, and it can’t even function as a serviceable umbrella.  Obviously, people are going to do what they’re going to do, but if you’re paying your credit cards and hoping you can catch up on the mortgage later, that’s a dangerous road to go down.

You’re using payday loan services frequently. Need I say any more?  Probably not, but here goes:  They’re always marketed as being useful as a short-term loan.  I’m not a fan of these services, but I recognize that if you have no money, and you need some, it’s a better alternative than starving/robbing a bank/spending to the point where your checking account goes into overdraft, and you owe your bank a ton of fees.  But these services can be dangerous, especially if your income is sporadic and not enough as it is.  It’s safe to say that if you’re going to these services once a month, that’s a pretty serious red flag, and if you’re using these services even just a few times a year, that should be a warning that the financial winds aren’t blowing your way.

You don’t have anything in a savings account. You know you should.  You just haven’t managed to.  Even if you’re dog-paddling and staying afloat, paying your credit card debt down on time and in general staying in good graces with your creditors, if you can’t muster up a little money to put side in a savings account, this isn’t a sign that you’re doomed.  But if you have trouble ahead, obviously not having any money on hand will make your situation more difficult.

You don’t have a budget. If you’re just kind of spending willy-nilly and hoping everything works out, that could be a bad sign that you’re not minding the store and heading toward a bad fall.  Or maybe it’s a sign that you have plenty of money and don’t need a budget, in which case, hey, congratulations, and why are you reading this blog?

You’re thinking of signing up with a debt settlement company. I’ve written about this on this blog — I’m not a fan of them — but The State Journal-Register in Springfield, Illinois, had an insightful editorial about debt settlement companies a few days ago. As they wrote, “typically… a company promises to reduce a person’s credit card debt by 40 percent to 50 percent.  First, the consumer must pay a fee of 15 to 20 percent of his or her total debt.  The companies target customers with heavy debt — usually $10,000 or more — so the initial fee is accordingly heavy.”  Making matters worse, according to Illinois’s Attorney General Lisa Madigan, who was quoted in the editorial, “For the first few months, all they’re doing is taking their fee.  They’re not actually doing any work to talk to your creditors and negotiate a settlement.”  And since debt settlement companies tell consumers to stop paying their creditors, you just wind up with late fees, an interest rate that will climb (since you’re not paying your fees, and while it may take a little longer for the interest rate to climb with the new laws in place, they will climb if you stop paying), and ultimately, you have more debt for the debt settlement to try to clear away.  But what was really eye opening was what Madigan said in the editorial — 30 to 40 percent of people who sign up with debt settlement companies end up declaring bankruptcy.

So what’s my point my bringing up some of these clues?  If you don’t occasionally actively look for the clues that you’re in trouble, and especially if you don’t avoid the most prominent and obnoxious of the red flags, like going to a debt settlement company, then you’re probably making your money situation worse and not better.  And if it’s not too late to get your financial house in order, spotting those clues can be invaluable.

So here’s something else to worry about, I suppose, if you’re single and dating.  I tell you, before I was married, when I was in my 20s, I had a lot of bad dates, but nothing quite like this.

In Philadelphia, a man was recently arrested for getting involved in relationships with women, and then once he knew something about them, he applied for several credit cards in their names.  Of course, he then went on shopping sprees, and generally, the relationships were terminated after the women had found out what he had done.   Â

That’s a question I haven’t asked and tried to answer on this blog yet and maybe I should. (Meanwhile, I have a question of my own.  Why can’t I make spaces between these paragraphs like on my other posts?  And I have no answer.  Well, hopefully it won’t drive the reader too crazy reading this.)

I debated for awhile, before starting to write this.  I’m already starting to become a poster child for bankruptcy, and that’s not exactly a career goal I ever set for myself.  But it seems like a topic that should be discussed here.

So are you asking yourself:  Should I declare bankruptcy?

There are a lot of credit card calculators out there, but one of the best is the one that the Federal Reserve has.  If you click on its credit card calculator web site, you’ll see that it’s very simple, but effective.  You just type in an amount of money you owe and the APR you’re paying on your card, and it’ll tell you how long it’ll take to pay off the debt.

And then it’ll give you a few boxes, so that you can type in, say, “5 years,” if you want to see how much you’d have to pay each month, to have your debt paid off in five years (or eight, or three, or whatever you choose).  You can also type in a dollar amount that you’d like to pay every month, and then it’ll tell you how many years your debt will be paid off in, if you stick with, say, $300 a month.  (Hopefully I’m explaining this well; if I’m not, just click on the link I inserted a paragraph ago, and you’ll see what I mean.)

But be warned, you might get this warning, if you type in an extremely high debt and an APR, like when I typed in $40,000 and a 29 APR (just to see what would happen):

I’m sure you’ve heard the news, and I’m not sure if I have much to add to the conversation, but we’ll see.  Bank of America made a big splash in the personal finance sector yesterday when they announced an end to their overdraft policy — when it comes to the debit card.

In other words, if you’ve ever used your debit card and bought a slab of bacon (I don’t know why I suddenly thought of bacon, but there you go), and you actually had nothing in your account because your spouse was at the doctor’s office and spent your remaining funds on a co-pay, and the check you deposited earlier this morning won’t actually all be available to you until tomorrow (please don’t pick apart this example; I’m sure there are holes), you won’t be allowed to make your purchase and go into overdraft and thus end up paying $39 for a $3.99 package of bacon.  Yes, you might be a little embarrassed — “Heh, heh, yeah, I’m so broke, that I can’t afford this $3.99 purchase…” but at least you won’t feel like a chump, having ultimately spent an extra $39 on your family’s breakfast.