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What Happens When You Don't Pay Your Credit Card Debt

A little self-control and financial responsibility go a long way.
PHOTO: istockphoto

To swipe or not to swipe? Having a credit card comes with a lot of perks and convenience—promos, points, and (safe) online shopping. But what happens when you realize at the end of the month that you went a little overboard with your purchases? You could pay the minimum amount due but that will just grow exponentially as interest piles up. Unless… what if you just disappeared along with your credit card debt?

We interviewed Atty. Ferdinand Cordova of the law firm Cordova, Perez & Associates to gain insight into this issue.

If you are late or if you fail to pay your credit card bill, the first thing that could happen is the bank will charge you interest and penalties. Legally speaking, the bank cannot charge you these fees unless you agreed to them beforehand when you signed up for the credit card. So remember to read the contract before signing! This is for your protectionthe bank or its collection agent are prohibited from imposing any charges or changing the rates without prior agreement.

But what if you still don’t pay? The bank will issue a demand letter that you settle your liability. If you still don’t pay even after receiving the letter, the bank can now file a civil case for collection against you since you have failed to pay your debt despite demand. This is in accordance with Sec. 20, Art III of the Philippine Constitution, which clearly states that no person can be imprisoned due to debt. This law is applicable since credit cards are a type of debt wherein you can spend up to your credit limit then pay the bank later. Note that it is a requirement that the creditor shows evidence of demandotherwise, the civil case is dismissed.

You may be protected by the law from imprisonment due to non-payment of debt but the law draws a distinction when you commit acts incidental to your debt. This is where Batas Pambansa Blg. 22 or the “Bouncing Checks Law” comes into play. If you issue checks as payment for your debt when the bank account is actually closed or has insufficient funds, you are in violation of this law. Therefore, the bank has the right to file a criminal case against you. Furthermore, you can also be held criminally liable if you abscond or transfer residence without prior notice to the creditor-bank.

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Assuming you somehow survive through all of that, what happens next? Say goodbye to your credit rating. Even if you eventually pay the debt, you will be marked as a high-risk debtor and find it nearly impossible to get approved for any type of loan. Rating agencies share information in the Philippines so once your record is tainted, it will continue to haunt you wherever you go.

But that’s as far as the damage goes. You will unlikely feel an impact on your employability unless you are applying for a finance-related job or any job where your credit rating matters. You will also probably still be able to avail of subscription services such as internet or cellphone plans with little to no problems.

What’s the key takeaway? A little self-control and financial responsibility go a long way. Keep a good relationship with your bank, and just pay your credit card debt. Never try to deceive or hide from the bank. You never know when you’ll need a loan to start a business, buy a car, or build a home. So it’s best to be forward-looking and not close any doors.

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