Missing credit card payments can have serious consequences While an occasional late payment may only result in a late fee, if you regularly miss or skip payments, it can damage your credit, leading to higher interest rates and difficulty getting approved for loans or other credit cards In some cases, you could even face legal action. Here’s a look at what can happen if you don’t pay your credit card bill.
Late Fees
If you miss a credit card payment, the first thing you’ll likely notice is a late fee on your next statement This fee is typically around $30 for the first missed payment and up to $40 for subsequent late payments While annoying, a single late payment likely won’t have a major impact on your finances. Just be sure to pay the late fee along with your minimum payment to avoid additional penalties.
Higher Interest Rates
If you miss multiple payments, your credit card issuer will likely hit you with a penalty APR. This involves raising your interest rate significantly, sometimes as high as 30%. This penalizes you for the missed payments and makes carrying a balance much more expensive. A penalty APR can last for up to six months.
Damage to Your Credit
Missed payments will also damage your credit score. Payment history makes up a significant portion of your FICO credit score, so if you have late payments, you’ll likely see your score drop. How much it drops depends on your specific credit situation. Someone with excellent credit and a long positive history may only see a small drop from a single missed payment. But if you already had fair or poor credit, a missed payment can knock your score down substantially.
A lower credit score makes it harder to qualify for loans, mortgages, and other credit cards in the future. You’ll also likely have to pay higher interest rates. So be sure to check your credit reports regularly and dispute any errors.
Debt Sent to Collections
If you go 180 days without making a payment, your credit card issuer will likely charge off your account. This means they write it off as a loss, close the card, and turn the debt over to collections. The collections agency will then try to recover the amount you owe through letters, calls, and other tactics. Having an account in collections severely hurts your credit.
Dealing with collections can be stressful. Know your rights under the Fair Debt Collection Practices Act. You can write a letter asking the debt collector to prove the debt and limiting how they can contact you. You should know that they could sue you, and if they win, your wages could be taken away.
Potential Lawsuit
If you continue not paying your credit card bill over an extended period, typically several months, your credit card company will likely file a lawsuit against you. If you lose the lawsuit, the court can enter a judgment allowing the creditor to garnish your wages, put a lien on your property, or even seize assets in some cases.
If you are sued over credit card debt, don’t ignore it. Consult a lawyer, especially if you can’t afford to pay the amount owed. You may be able to negotiate a settlement or set up a payment plan. Failing to respond can result in a default judgment against you.
Account Closure
After several months of non-payment, your credit card company will likely close your account altogether. This can happen after 180 days without a payment, or when your account is charged off and sent to collections. Closing the account means you can no longer use the card or available credit. The closure remains on your credit reports for 7-10 years.
Tips for Avoiding Credit Card Payment Problems
Here are some tips to help avoid problems if you’re struggling to pay your credit card bill:
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Contact your issuer ASAP: If you’re having trouble making payments, call your credit card company right away. Explain the situation and ask if they can waive late fees, reduce interest rates, or set up alternative payment plans.
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Prioritize essential expenses: In a financial crisis, pay necessities like rent, utilities, food and transportation before credit card bills. This protects your family while you get back on your feet.
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Pay as much as you can. If you can’t pay the full amount, try to pay as much as you can that month. Even minimal payments show good faith effort.
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Avoid using the card: Don’t dig the hole deeper by continuing to use the card while behind on payments. This just increases the amount you owe.
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Think about managing your debt. Credit counseling services that are free of charge can help you get back in control by offering strategies like debt consolidation and management plans.
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Discuss options if sued: If legal action is threatened over the debt, consult a lawyer. You may be able to negotiate a settlement or payment plan.
The consequences for not paying your credit card bills can be severe, especially over time. But there are ways to minimize the damage if you act quickly and work with your card issuer. Maintaining open communication and showing that you’re acting in good faith can go a long way in many cases.
Add up your income and expenses
Look for ways to cut costs. If you can’t find enough to pay your minimum payment, decide how much you can afford to pay.
Call your credit card company
When you talk to your credit card company, be sure to clearly explain:
- Why you can’t pay the minimum
- How much you can afford to pay
- When you could restart your normal payments
- What new payment amount you are requesting and for how long
What Happens If You Never Pay Your Credit Card? (Explained)
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