Former Hedge Fund Manager's Controversial Advice: 'Don't Pay Back Your Credit Card Debt

Onetime hedge fund manager James Altucher made waves this week with a new video in which he offers some controversial financial advice by claiming that people should opt out of paying back their credit card debt.

Altucher, 48, a best-selling author, entrepreneur and angel investor, maintains a blog and a podcast where he shares the lessons he has learned through the failures and successes he experienced during his years in the business world. In the new video, titled "Don't Pay Back Your Credit Card Debt: A Rant By James Altucher," Altucher claims that maintaining a good credit score is one of the "myths" about credit cards that should simply be ignored.

Image source: Business Insider

"I got an email a few months ago. Someone was having problems making ends meet, they were having problems with their mortgage, they had just lost their job," Altucher explained in the video. "They asked me, 'Should the first thing I do is pay back my credit card debt?' And the answer is, 'No. Stop paying back your credit card debt completely.'"

Altucher proceeded to explain exactly what credit card companies do with unpaid debt: "After a certain number of days, 60-90 days, they sell it off. Who's now collecting your debt? Well, hedge funds buy this debt, banks buy this debt, sometimes lawyers buy this debt, and then they outsource to collection agencies to collect this debt from you."

According to Altucher, when the hedge funds buy unpaid credit card debt from someone, they aim for receiving 3-6 percent of the debt.

"The collection agency is gonna go to you and say, 'We want the $10,000 debt,' and you could say, 'OK, I'll pay $1,000,' and they're gonna say yes because otherwise they would never have gotten this, and, by the way, it's more than they expect," Altucher said. "Believe me, the banks don't care about your credit card debt. They actually model out that a certain number of people will default. More than those people will not default. You'll default, your credit score will go down, but it's easy to fix once your other financial life is back in shape."

When discussing the consequences of these actions, Altucher maintained that it is not a big deal if someone's credit card score goes down because credit score is a "scam" most of the time. After saying that his own "horrible" credit score was around 600 or lower, Altucher said that when he had to rent an apartment recently, all he had to do was pay an extra month of rent in advance.

"What if everybody does this? Won't the banking system collapse? I don't know," Altucher continued. "Guess what? Not everyone is going to do this, so you might as well do it."

(H/T: Business Insider)

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