Credit card debt doesn’t typically go away on its own, even if you go to prison, so it’s best to have plans to take care of your debt before it gets worse. This could include paying off debt before going to prison or creating a strategy to ensure debt payments are made while incarcerated.
You’re generally still responsible for making debt payments if you go to prison.
You might not have the same access to your financial accounts, including bank accounts, to make required payments, so it’s best to have a plan before you begin your sentence. The best scenario is to pay off your debt completely before prison, but that’s not always possible.
Consider appointing a trusted individual to make payments on your behalf if needed. That way, you can avoid falling behind on payments and paying more interest and fees. Contact each lender to let them know your proxy is permitted to manage your account and pay your credit card bills during your incarceration.
It could also be worth your time to ask your lenders if an agreement can be made concerning your payments. What that looks like — including a potential pause in payments — depends on what your financial institution is willing to do. It might not result in anything, but it doesn’t hurt to ask, and it’s still important that they’re aware of the situation.
Potential consequences of stopping your credit card payments include:
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Pay late fees: Most credit card companies charge late fees if you miss a payment.
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Accrue interest: With high credit card interest rates, your balance can quickly grow and get out of hand. For example, it would take over 47 years to pay off a $5,000 balance on a card with a 20% interest rate if you only made minimal monthly payments. In this example, you would have to pay over $42,000 in interest — imagine how much more it would be if you weren’t making any payments.
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Lose promotional offers: With 0% introductory APR credit card offers, you must follow the terms and conditions or risk losing the offer. This typically means if you make a late payment, as described in the terms and conditions, you lose the 0% intro APR offer and are subjected to a high penalty APR.
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Have your debt sent to collections: Your lender could send your debt to a collections agency if you continue to miss payments. Laws about debt collection practices, including the Fair Debt Collection Practices Act, can help protect you, but dealing with debt collectors can still be frustrating.
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Sued by your credit card company: Your lender or a debt collection agency can sue you to try and force you to pay past-due fees, interest, and balances. Depending on the result, you could have your wages garnished, your bank account funds frozen, or a lien could be placed against your property. Wage garnishment is when a portion of your wages are withheld to make debt payments.
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Damage your credit score: Late payments are reported to credit reporting agencies and significantly impact your credit score. They stay on your credit report for up to seven years. Accounts sent to collections or closed by lenders at a loss can also show up on your credit report and affect your credit score.
Read more: How to check your credit score for free
Paying off credit card debt isn’t always easy, but a solid strategy can help you work toward becoming debt-free.
A balance transfer credit card can give you some breathing room with paying off credit card debt. Most balance transfer cards have 0% introductory APR offers on balance transfers, which lets you avoid interest on transferred balances for a certain amount of time.
For example, a 0% intro APR offer for 12 months means you don’t have to pay interest on qualified balance transfers for one year. That gives you a decent chunk of time to pay off your balance without worrying about interest charges.
There are a few things to be aware of with balance transfer offers:
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Balance transfer fees: Most balance transfer cards charge a balance transfer fee of 3% to 5% of the transferred balance. For a balance transfer offer to be worth it, you need to calculate whether the money you save on interest is more than what you have to pay in fees.
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Standard APR: The credit card standard APR returns once the balance transfer promotional period ends. Since credit card interest rates are high, paying off as much of your balance as possible during the intro APR period is best.
A personal loan can help you organize your debt and lower your overall interest rate. They typically have lower interest rates than credit cards, making them a reasonable option for consolidating credit card debt as part of a debt management plan or a repayment strategy.
Personal loans can come with various fees, including application and origination fees.
Learning how to budget can help you establish a lifelong skill that provides value in any number of financial situations. Two popular budgeting strategies include the debt avalanche and debt snowball methods.
With the debt avalanche method, you first want to pay off your debt with the highest interest rate. Once that is paid off, you move to the debt with the next highest interest rate. This strategy aims to save you the most money by focusing on high-interest debt.
With the debt snowball method, you first focus on paying off the smallest debt. Once that’s paid off, you move to the next smallest debt. This strategy can help keep you motivated and give you a winning feeling as you pay off each debt.
Negative items, such as late payments and accounts sent to collections, can stay on your credit report for up to seven years and negatively impact your credit score the entire time. They should automatically fall off your credit report after seven years.
You can’t go to jail for unpaid credit card debt, as traditional debtors’ prisons no longer exist. However, it’s possible that unpaid debt could eventually lead to jail time if you’re sued and you fail to comply with a court order, such as not showing up to court and being found in contempt of court.
If a debt collector is violating the law through harassment or abusive practices, consider contacting your Attorney General’s office, submitting a complaint to the Federal Trade Commission (FTC), or submitting a complaint to the Consumer Financial Protection Bureau (CFPB).
Editorial Disclosure: The information in this article has not been reviewed or approved by any advertiser. All opinions belong solely to the Yahoo Finance and are not those of any other entity. The details on financial products, including card rates and fees, are accurate as of the publish date. All products or services are presented without warranty. Check the bank’s website for the most current information. This site doesn’t include all currently available offers. Credit score alone does not guarantee or imply approval for any financial product.
Source: finance.yahoo.com