If you are in dire financial straits and feel that the only way to get back on you feet is to default on your credit card debt, let me offer you the following words of encouragement. But first I want to affirm what many on this forum and what the credit card companies themselves will tell you. By defaulting, you are in breach of contract. There are no two ways around it and the only way to deny it is through self-delusion.
Now, having said that, I still contend that if default is the only way to improve your financial situation, go forth and default. Many people feel that defaulting on a credit card debt, or any contractual debt for that matter is a moral matter and therefore renders the default as an immoral act and the one who defaults as an immoral person. I believe this is a misconception which has served the creditors quite well. But if one removes default from the realm of morality and instead understands it as a purely pragmatic decision, the implications will not seem so dire and the consequences not nearly as severe. In addition to the misconception that defaulting is a moral matter, many feel that to default is the equivalent to theft, and most people do not relish the idea that they are thieves and rightfully so. But default is not theft because theft implies intention and how many people incur a debt with the sole intention of defaulting on that debt? Indeed this could be the case in some isolated instances, but it is an extremely rare thing I'm certain. And even in the rare cases where someone would deliberately go into debt with the intention of defaulting, it would be difficult to prove those intentions; and it would appear that this fact is recognized by the legal system since defaulting on a debt is not punished criminally.
Having established that defaulting on a debt is neither a moral matter, nor the criminal offense of theft as even the legal system clearly recognizes, the issue moves into the arena of pragmatics. Now, the issue of making difficult financial decisions which have unhappy results is not a new thing to the business world. They make decisions like this every day. Corporations make these types decisions with the motive of profit and company solvency as primary. When a corporation lays an employee off or reduces his or her salary or benefits, it does so for the sake of profit and most people recognize this as legitimate and acceptable because that is what a corporation is in business for to begin with. Well that same logic applies to individuals, only with an individual, the primary goal is not profit as that is a concept that applies to business. For an individual, the motivation for financial decisions are more along the lines of ensuring that the necessities for survival are provided for both the individual and his or her dependent family and perhaps after that, securing some savings for contingencies and for the future. Therefore the decision by an individual to default on a debt is on an equal footing with a corporation's decision to terminate a employee due to failing profit or company insolvency reasons. Both decisions are the result of changing circumstances and are pragmatic in nature and do not belong in the sphere of morality. A corporation terminating an employee due to a downturn in the economy and a decrease in profits is a decision based on a change in circumstances. When the employee was hired, the economy was better and profits were high, thus the costs attributed to the services provided by the employee were justified. Now, with the negative changes in the economy and the consequent effects on profits, it is no longer considered a justifiable cost to keep the employee on the payroll. Few will argue that the corporation was not justified in terminating the employee for these reason despite the subsequent financial hardships which will ensue.
Similarly, when negative economic changes result in an individual deciding that debt default will stabilize his or her financial situation, his or her decision to do so is based on the same pragmatic justification that corporations employ when making their decisions to terminate employees or reduce salary and benefits. The circumstances have changed and default may be an attractive option for the struggling individual. But for some reason, when an individual makes this decision, he or she is maligned, not just by his or her creditor, which is understandable; but also by much of the general public as well. The logic here escapes me. Perhaps it is because many people falsely think that defaulting on a debt is a moral decision. If this is the case, why do they not consider the actions of the corporation immoral? Anyway, hopefully my argument above will change that thinking and people will understand that decisions of economics must be removed from the moral arena and placed in the pragmatic arena instead. Also, the acceptance of the fact that defaulting on debt is not considered as theft and is never punished as such may also reduce the duplicitous opinions on this subject.
Now there is one valid argument that can be used against the debt defaulter which cannot be used against the corporation on this matter. It is something we touched on at the beginning of our discussion. Defaulting on a debt is a breach of contract, whereas a corporation terminating an employee due strictly to reasons of economics is not. Corporations do not sign a binding contract with you to keep you employed regardless of economic considerations, but when one applies for and receives a loan, such a contract is indeed required. Perhaps this is the justification for the vitriol against debt defaulters; they may not be immoral, they may not even be thieves, but by God they are contract breakers!
Well, perhaps we can put this idea of breach of contract into perspective. Indeed a contract is a good thing in that it ensures against foul play against the creditor for transient, superficial and surreptitious reasons. No doubt if there were no contracts, the incidence of default would be a hundred fold worse. But to hold someone to a contractual obligation when the keeping of that contract will do serious harm to the person under the contractual obligation is unreasonable and cruel especially when the harm done to the person who violates the contract is worst than the harm done to the contract holder. In most cases, breach of contract will result in a lowering of profits for the creditor but not in the complete destruction of the corporation or lending institution. Indeed, even with the high incidence of default, one still sees million dollar television, radio and print media advertising campaigns going on for all the major credit card companies. It hardly seems as if the levels of default has effected their advertising budget for one thing. Indeed these corporations will continue to pay their overhead and their creditors and the loss due to defaulting debtors will come out of their profits. But what are the consequences if the contract is not breached and the debtor pays the creditor in full despite his or her diminished economic situation? It could mean going without necessities to life. It could mean skipping meals or not being able to purchase medication. It could mean eviction or home foreclosure and a whole host of much more serious circumstances than the simple cut in profits that would be the creditors burden to bear if the route of default and breach of contract was taken by the debtor.
Now, having demonstrated that in most cases the harm done to the debtor in not breaching contract is more severe than the harm done to the creditor if the debtor defaults; from a strictly pragmatic and utilitarian sense, the option that would do the least harm would be to default on the debt. This is a case where due to circumstances changing for the worst, no matter which decision is made, one party will be harmed. But clearly in a situation where only one party wins as it were, it is better to ensure that the losing party is the one who is most able to absorb the loss. Clearly in the majority of the cases, this would be the creditor.
Hopefully this will empower those who through no fault of their own, feel that defaulting is the only option for them. Remember the following things when you default:
1. Remember that by defaulting, the harm done to the creditor is negligible compared to the harm incurred by the individual if he or she does not default.
2. Remember that defaulting is not a moral decision and does not involve morality. Defaulting on a debt is an economic decision driven solely by pragmatic and economic considerations, just like the decisions corporations make when they decide to terminate employees or reduce salaries and benefits for financial reasons.
3. Defaulting on a debt is not theft because theft implies intention and most people do not intend to default at the outset and even if they did, it would be very difficult to prove. The legal system realizes that and that is why you debt defaulters are not
criminally prosecuted.
So if defaulting is the only option, take the above facts as comfort and know that you are just making a good business decision like corporations do all the time. Is it fair? No, but we all know life isn't fair and the best we can ever do is what is best for ourselves and our families who depend on us. Life owes none of us anything, corporations and individuals alike. If it comes down to it, we must take what we need to survive.
One final observation regarding contracts: Has it ever occurred to you that contracts do more to protect corporate profits than they do to protect general welfare. Since as I demonstrated above, profits are primarily what suffer when debts are defaulted on and contracts are breached, the contract whether by design or not protects what needs protection the least. Contracts protect profit, which is abundance at the expense of necessities, which often are not met due lack and deficiency. Some food for thought.
Now, having said that, I still contend that if default is the only way to improve your financial situation, go forth and default. Many people feel that defaulting on a credit card debt, or any contractual debt for that matter is a moral matter and therefore renders the default as an immoral act and the one who defaults as an immoral person. I believe this is a misconception which has served the creditors quite well. But if one removes default from the realm of morality and instead understands it as a purely pragmatic decision, the implications will not seem so dire and the consequences not nearly as severe. In addition to the misconception that defaulting is a moral matter, many feel that to default is the equivalent to theft, and most people do not relish the idea that they are thieves and rightfully so. But default is not theft because theft implies intention and how many people incur a debt with the sole intention of defaulting on that debt? Indeed this could be the case in some isolated instances, but it is an extremely rare thing I'm certain. And even in the rare cases where someone would deliberately go into debt with the intention of defaulting, it would be difficult to prove those intentions; and it would appear that this fact is recognized by the legal system since defaulting on a debt is not punished criminally.
Having established that defaulting on a debt is neither a moral matter, nor the criminal offense of theft as even the legal system clearly recognizes, the issue moves into the arena of pragmatics. Now, the issue of making difficult financial decisions which have unhappy results is not a new thing to the business world. They make decisions like this every day. Corporations make these types decisions with the motive of profit and company solvency as primary. When a corporation lays an employee off or reduces his or her salary or benefits, it does so for the sake of profit and most people recognize this as legitimate and acceptable because that is what a corporation is in business for to begin with. Well that same logic applies to individuals, only with an individual, the primary goal is not profit as that is a concept that applies to business. For an individual, the motivation for financial decisions are more along the lines of ensuring that the necessities for survival are provided for both the individual and his or her dependent family and perhaps after that, securing some savings for contingencies and for the future. Therefore the decision by an individual to default on a debt is on an equal footing with a corporation's decision to terminate a employee due to failing profit or company insolvency reasons. Both decisions are the result of changing circumstances and are pragmatic in nature and do not belong in the sphere of morality. A corporation terminating an employee due to a downturn in the economy and a decrease in profits is a decision based on a change in circumstances. When the employee was hired, the economy was better and profits were high, thus the costs attributed to the services provided by the employee were justified. Now, with the negative changes in the economy and the consequent effects on profits, it is no longer considered a justifiable cost to keep the employee on the payroll. Few will argue that the corporation was not justified in terminating the employee for these reason despite the subsequent financial hardships which will ensue.
Similarly, when negative economic changes result in an individual deciding that debt default will stabilize his or her financial situation, his or her decision to do so is based on the same pragmatic justification that corporations employ when making their decisions to terminate employees or reduce salary and benefits. The circumstances have changed and default may be an attractive option for the struggling individual. But for some reason, when an individual makes this decision, he or she is maligned, not just by his or her creditor, which is understandable; but also by much of the general public as well. The logic here escapes me. Perhaps it is because many people falsely think that defaulting on a debt is a moral decision. If this is the case, why do they not consider the actions of the corporation immoral? Anyway, hopefully my argument above will change that thinking and people will understand that decisions of economics must be removed from the moral arena and placed in the pragmatic arena instead. Also, the acceptance of the fact that defaulting on debt is not considered as theft and is never punished as such may also reduce the duplicitous opinions on this subject.
Now there is one valid argument that can be used against the debt defaulter which cannot be used against the corporation on this matter. It is something we touched on at the beginning of our discussion. Defaulting on a debt is a breach of contract, whereas a corporation terminating an employee due strictly to reasons of economics is not. Corporations do not sign a binding contract with you to keep you employed regardless of economic considerations, but when one applies for and receives a loan, such a contract is indeed required. Perhaps this is the justification for the vitriol against debt defaulters; they may not be immoral, they may not even be thieves, but by God they are contract breakers!
Well, perhaps we can put this idea of breach of contract into perspective. Indeed a contract is a good thing in that it ensures against foul play against the creditor for transient, superficial and surreptitious reasons. No doubt if there were no contracts, the incidence of default would be a hundred fold worse. But to hold someone to a contractual obligation when the keeping of that contract will do serious harm to the person under the contractual obligation is unreasonable and cruel especially when the harm done to the person who violates the contract is worst than the harm done to the contract holder. In most cases, breach of contract will result in a lowering of profits for the creditor but not in the complete destruction of the corporation or lending institution. Indeed, even with the high incidence of default, one still sees million dollar television, radio and print media advertising campaigns going on for all the major credit card companies. It hardly seems as if the levels of default has effected their advertising budget for one thing. Indeed these corporations will continue to pay their overhead and their creditors and the loss due to defaulting debtors will come out of their profits. But what are the consequences if the contract is not breached and the debtor pays the creditor in full despite his or her diminished economic situation? It could mean going without necessities to life. It could mean skipping meals or not being able to purchase medication. It could mean eviction or home foreclosure and a whole host of much more serious circumstances than the simple cut in profits that would be the creditors burden to bear if the route of default and breach of contract was taken by the debtor.
Now, having demonstrated that in most cases the harm done to the debtor in not breaching contract is more severe than the harm done to the creditor if the debtor defaults; from a strictly pragmatic and utilitarian sense, the option that would do the least harm would be to default on the debt. This is a case where due to circumstances changing for the worst, no matter which decision is made, one party will be harmed. But clearly in a situation where only one party wins as it were, it is better to ensure that the losing party is the one who is most able to absorb the loss. Clearly in the majority of the cases, this would be the creditor.
Hopefully this will empower those who through no fault of their own, feel that defaulting is the only option for them. Remember the following things when you default:
1. Remember that by defaulting, the harm done to the creditor is negligible compared to the harm incurred by the individual if he or she does not default.
2. Remember that defaulting is not a moral decision and does not involve morality. Defaulting on a debt is an economic decision driven solely by pragmatic and economic considerations, just like the decisions corporations make when they decide to terminate employees or reduce salaries and benefits for financial reasons.
3. Defaulting on a debt is not theft because theft implies intention and most people do not intend to default at the outset and even if they did, it would be very difficult to prove. The legal system realizes that and that is why you debt defaulters are not
criminally prosecuted.
So if defaulting is the only option, take the above facts as comfort and know that you are just making a good business decision like corporations do all the time. Is it fair? No, but we all know life isn't fair and the best we can ever do is what is best for ourselves and our families who depend on us. Life owes none of us anything, corporations and individuals alike. If it comes down to it, we must take what we need to survive.
One final observation regarding contracts: Has it ever occurred to you that contracts do more to protect corporate profits than they do to protect general welfare. Since as I demonstrated above, profits are primarily what suffer when debts are defaulted on and contracts are breached, the contract whether by design or not protects what needs protection the least. Contracts protect profit, which is abundance at the expense of necessities, which often are not met due lack and deficiency. Some food for thought.
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