Missing credit card payments can have serious consequences. If you fail to pay your credit card bill, your credit card issuer will take action to recover the owed money Here’s an overview of what happens when you don’t pay your credit card bill and how to get back on track.
Initial Late Notices
Your credit card issuer will start contacting you if you miss a payment. The first notice you’ll receive is usually within a few days of your missed due date. This serves as a reminder to pay your bill immediately. If you still don’t pay, another notice will arrive within 15 days of your missed payment. This second notice warns that continued nonpayment will result in a penalty APR and fees.
At this point, your credit card issuer will report your late payment to the credit bureaus This can cause an immediate drop in your credit score that will remain for up to 7 years.
Penalty Interest Rate
If you go 60 days without making a payment your credit card issuer can raise your interest rate to a penalty APR. This is typically around 30% but can be as high as 40%. The penalty rate will be applied retroactively to any existing balance you have.
This makes it harder to pay off your credit card debt and makes it cost a lot more to keep a balance. The penalty rate may stay in place forever, even if you start making payments on time again.
Late Fees
In addition to a penalty rate, you’ll be charged late fees for any missed payments. The fee is usually $15 for the first late payment and up to $40 for subsequent violations. The total amount you owe continues growing with each missed due date.
Collection Calls
Around 3 months of no payments, your credit card issuer will assign your account to a collection agency. Be prepared for frequent phone calls demanding payment. Collectors may also contact your friends, family, employer and other references asking for your contact information and requesting payment.
This can be embarrassing and disruptive to your personal relationships. Collectors are allowed to place these calls between 8am to 9pm as they attempt to recover your debt.
Debt Collection Lawsuit
The collection agency will work on collecting the debt for several months. If you continue neglecting the account, they will recommend legal action to the credit card company. At this point, around 6 months of nonpayment, your creditor can sue you to recover the money owed.
If they win the lawsuit, the court will issue a judgment against you. This gives the credit card company several avenues to collect through garnished wages, levied bank accounts, or liens placed on your property. A judgment also remains on your credit history for 7 years causing ongoing damage.
Settling Credit Card Debt
Some people consider credit card debt settlement after being sued. To do this, you have to agree to pay a lump sum that is less than the full amount that is owed. A settlement, on the other hand, is reported to credit bureaus and can stay on your report for up to 7 years.
Debt settlement companies also charge hefty fees for their services. Any savings from settling your debt can easily be lost to fees. You’re often better off working directly with your credit card issuer to pay back what you owe over time.
Bankruptcy
For those unable to repay their credit card debt, bankruptcy is a last resort option. Filing Chapter 7 bankruptcy liquidates your assets to pay back a portion of what you owe. Any remaining unpaid debt is eliminated.
Chapter 13 bankruptcy allows you to keep your assets and repay debts through a court-mandated payment plan over 3 to 5 years. Both options severely damage your credit score making it difficult to get loans or credit cards in the future.
Getting Back on Track
If you’re struggling to pay your credit card bills, take action before your account goes into default. Call your credit card company right away and explain your situation. Many issuers allow you to set up smaller payments over several months until you get back on your feet.
You can also ask about lowering your interest rate to reduce the cost of your existing balance. Tell them you’re willing to close the account to avoid increasing your debt further.
Continuing communication is key as you work to resolve the situation. Also look at cutting expenses and increasing income where possible. With time and diligent effort, you can recover from credit card nonpayment and work towards rebuilding your credit.
Can you go to jail for credit card debt?
While this is something a lot of people worry about, the risk of a prison sentence for unpaid debts is very rare. It’s only a possibility for certain types of debt, including criminal fines and government debts, and this is a last resort after other types of debt collection have been explored.
Credit card debt, along with most common forms of credit, isn’t enforced by the threat of imprisonment. If a creditor threatens you with this, you should consider making a complaint about them. Find out more about the types of debt that could lead to a prison sentence.
Minimum credit card payments
All credit cards have a minimum amount you must pay back each month.
This will be a percentage of the amount you owe, usually between 1% and 3% each month. Normally, therell be a minimum amount of £5.
If your payments cover more interest and charges than your actual credit card balance for 18 months or longer, this is classed as a ‘persistent debt’.
If you have a persistent debt, your credit card company will write to you and ask you to increase your monthly payment. Some credit card companies are changing their terms and conditions to increase the minimum payment in order to get customers out of persistent debt.
By understanding your budget, you may find that you’re able to pay off your credit card faster at a rate you can afford.
Some cards are available for people with a bad credit history and have a low limit of £200 or so. Often these cards have a high interest rate, but if you pay them back on time, they can be a good way to boost your credit rating by showing other creditors that you can be trusted.
Other cards have a much higher limit which can go into the thousands. Whether you have a low or high credit limit, its very easy to run up unaffordable debts which will take a long time to pay back.
Sometimes your card provider will offer to increase your credit limit, especially if you have a good history of payments.
You should think very carefully before agreeing to an increase in your credit limit, and refuse the increase if you dont need it. If your card provider increases your limit without check on affordability, this could be grounds for a complaint.
Some people like a higher limit just in case, but theres always the temptation to keep spending and run up a debt you eventually cant afford to pay back.
What Happens If You Never Pay Your Credit Card? (Explained)
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