I’ve never thought of myself as someone who is highly ethical or ‘honourable’ but as I read more stories of bankruptcies and people trying to dodge paying their bills, I’m beginning to wonder if perhaps I am. I was raised by parents who believed that if you borrowed money you paid it back. To them, defaulting or not paying back your credit card debt is not different than robbing a bank.
Would You Rob a Bank If You Could Get $65,000 for Free?
Let’s say you’re not a violent person. You would never stick a gun or knife in a teller’s face; you would never threaten to detonate a bomb; you wouldn’t even use an explosive to blow open a safe after hours.
But what if you came into a branch and realized you could vault the counter, clear out a till, vault back, and get away. What if you knew the cameras were deactivated and that the only person working was unable to see you enough to recognize you again. What if it was in a town you would never pass through again and from which you could escape from with no problem immediately.
Would you take that jump?
If not, what would stop you from putting all those crisp (well, actually slippery plastic if you’re in Canada) bills in your pocket and running?
Is Refusing to Pay Your Credit Card Bill, Personal Loan or Overdraft OK?
I understand that people can end up in bad situations temporarily due to illness (mental or physical), job loss and various catastrophes. They may be unable to pay their bills or even pay the interest on their loans while they steer through the storm.
Fine.
In time, many of these people successfully navigate back to calmer waters. Once a person is well again and has income coming in again, slightly above what is needed to survive, they need to decide how to handle their debts.
The ones like me would work to put a plan in place to gradually pay off those old debts. It’s the right thing to do. It may take a long, long time. It may mean not getting to follow my dreams. But when I borrowed that money, I knew it wasn’t mine to keep and once I could pay it back, that’s what I’d do.
So I find it quite surprising to read that others have a totally different viewpoint.
Is the Only Reason to Settle Your Debts to Repair Your Credit History So You Can Borrow More?!
I’ve read several anecdotes on financial advice chat boards that made me read them a second time to make sure I wasn’t missing something. (And yes, I know anecdotes can be fake: but the details of some of them suggest they aren’t all lying.)
The common thread is the writer is upset that they have a terrible credit rating because they skipped out on their bills. Usually they had a (somewhat) reasonable reason for going into default. Now that times are better, though, they aren’t interested in setting up a repayment plan. They want to know:
- How long does it take for their past bad behaviour to become invisible on their credit reports?
- How little can they offer to pay the companies holding their debts to get them discharged?
- Can they “buy” a clean credit report by paying some “credit repair firm” to send in letters saying it was all a misunderstanding?
These are people who admit they could pay off the debts in full. They want to get these black marks off their records *so that they can borrow more money!*
How can they justify this to themselves? Don’t they think they should pay back what they owe? Don’t they think future lenders should know the bad way they’ve handled their loans in the past?
Defaulting on Debt Is a Victimless Crime
It’s pretty obvious that these people don’t care that they have stolen money from the businesses from which they borrowed.
Perhaps they justify it to themselves by reading about the “obscene” profits banks make. And the “outrageous 1%” salaries that the bank executives earn.
They may even justify it by saying that credit cards deserve to get ripped off since they charge 20% interest a year on outstanding balances.
I think quite a few of these people would never consider walking into a bank and robbing a teller. But to them, refusing to pay their debts isn’t the same. It’s a victimless crime.
But Just Whose Money Did They Steal?
There’s a common general feeling that “banks have huge amounts of money.” They certainly hold and manage huge amounts of money.
But it’s not *their* money. That mortgage money the bank lent you is actually my money that I invested in GICs at that bank. That credit card loaned you money which you were supposed to pay back when you received your statement. If you don’t pay it back right away, the institution backing the credit card is using money loaned to it by investors to cover your debt.
Banks aren’t using their own personal money to manage debt. They’re balancing what people invest in and through them with what they loan.
When someone defaults on their credit card bill, they are in a real sense robbing the rest of us.
Why Do You Think Credit Cards Can Charge 20% a Year on Balances?
Believe it or not, credit card interest rates actually are reviewed by the government. It may seem like they can charge whatever they want but they actually can’t. (Which is why one of the Payday Loan type places in Ontario is being forced to shut down: they were trying to charge too much money to customers by disguising interest charges under fancy names like account set up fees; account access fees; repayment processing fees, etc.)
The reason the government is permitting these outrageously high credit card interest rates is because the card issuers can show proof of the huge number of people who default on their bills and never pay them.
That’s right. If you are one of those people who skip out on your credit card bills, you are part of the reason why everyone else in the country is stuck with these high interest rates even though they are gradually paying off their own bills.
It’s not a “victimless” crime. It’s a crime that hurts all of us.
Do I Think Credit Card Companies and Banks Are Innocent?
No. I understand that they grant too much credit too easily to too many people. That is a recipe for defaults.
When I was in university, you couldn’t get a credit card until you graduated unless you had a proven steady job.
Now, students are flooded with offers for free credit cards even though they have no steady stream of income to pay them back.
I also see people making minimum-wage being given credit limits in the thousands of dollars. Some will manage that credit very carefully and well. Some will end up impoverished by it.
But I don’t think bad management choices by credit card companies give anyone an excuse to default on their debt.
If you borrowed money and promised to pay it back, you should stick by your word.
What About You? Would You Rob a Bank? Would You Default on Your Loan? How Are Those Actions Different?
I’m genuinely interested in hearing other people’s opinions on this. Do you think it’s ok to default on your credit card or personal loan debt? Do you really think that any reference to that poor behaviour should be removed from your credit history so that future lenders don’t know?
Is it significantly different to rob a bank than to default on credit? Why? How?
Please share your views with a comment.
Related Reading