Underwater With Your Mortgage? Drowning In Debt? More Homeowners Are Ignoring Money Problems

(MoneyWatch)  It's a classic recession problem: Homeowners are underwater with their mortgage and drowning in revolving debt and are opting to simply not pay.

In an online poll of more than 11,000 consumers, the National Foundation for Consumer Credit (NFCC) found that 10 percent of respondents would ignore their money problems and walk away from their debt as a first response to their financial distress.

And The National Foundation for Consumer Credit Survey Says...

The survey asked the following questions (survey results follow in parenthesis):

If I were in debt beyond what I could manage on my own, my first point of action would be to

• Ignore the debt since I can't pay it (10 percent)
• Seek help from a legitimate credit counseling agency (38 percent)
• Consider debt settlement through a debt settlement company (14 percent)
• Talk directly to my creditor(s) about debt settlement (33 percent)
• File for bankruptcy (5 percent)

According to Gail Cunningham, a spokesperson for the NFCC, that 10 percent number mirrors the official level of unemployment and the rate at which credit card holders are defaulting on their debt.

"At first glance, the response makes perfect sense. After all, if you are out of work, you're worried about keeping a roof over your head and food on the table. However, simply ignoring the situation is possibly the worst possible decision a consumer can make. Not only does it not resolve the problem, it exacerbates it," she said in a release this morning announcing the results of the January survey.

Should Homeowners Walk Away From Their Debts?

If the problem is crushing debt that you're never going to be able to repay with your current income, I'm not sure that walking away from your debt really exacerbates that problem. If you stop paying, you'll be able to put some cash aside to pay for a bankruptcy attorney to file your paperwork.

If you're talking about your credit history and credit score, sure. Walking away from your debt will lower your credit history and credit score. But if you're already several months late in making your payments, your credit history and score have already taken a huge hit. Will they go down further if you simply never pay again? Probably some, but not as much as you might imagine.

(I wonder if credit card companies think about what would happen if consumers simply stopped paying attention to their credit history and score.)

It's in the NFCC's best interest to encourage consumers to find a legitimate credit counseling agency and engage them to help manage and pay down their debt.

But with millions of Americans out of work, NFCC can't always help. A legitimate credit counseling agency won't put you into a debt management plan if you don't have any (or enough) income. So, what are these folks to do?

If you're underwater with your mortgage and drowning in debt, maybe walking away from your debt, and into bankruptcy court, is the best possible decision a consumer can make - even if only 5 percent of those surveyed mentioned it as a first point of action.

Read More:

• Underwater? Maybe You Should Walk Away From Your Mortgage
• State Unemployment Numbers Worsen: No Job, No Money, No End To The Housing Crisis
• Loan Modification Hell: Earned Income Tax Credit Might Help
• Extreme Makeover Home Edition Foreclosure? How Do You Write a Happy Ending?

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and the upcoming Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com.