Your credit rating, it’s very important and you should always use your credit responsibly. However, as seen in 2020, circumstances can change in an instance and turn your world upside down. There’s many things that can happen that could potentially force you to choose between paying a bill or food, versus paying your credit card.
If you default on your credit card, what will happen?
What Happens If I Can’t Pay My Credit Cards?
If you stop paying your credit card bills, you’re going to feel instant relief financially. That relief is going to be short lived though as your life is going to go downhill if you stop paying your credit cards. You need to pay your monthly payments every month, and if you think they’re no consequences, better think again. Your credit card issuer will quickly take action on your missed payments and it won’t take long for them to start affecting your credit.
If you did stop paying your credit cards, you’re going to begin collecting late fees. On top of that, your minimum monthly payment will begin to increase, this is because you’re going to have to make up all the payments you’ve missed. What hurts you more, you’re going to see an interest rate spike after your account becomes 60 days past due, which is 2 total missed payments. If you continue to miss your credit card payments, you’re going to see more late-payment fees added to your balances.
Be aware, when the penalty rate begins, you’re going to see your finance charges increase as well. Your outstanding balance and the payments to catch up get larger every month you’re late. The more you get behind, the tougher it will be to catch up.
Let’s say you catch back up on your credit card payments, while you may think you’re out of the woods, the penalty rate will remain in effect until you’ve made 6 straight payments on time. Once you do that, your interest rate will go down for your existing balance but the penalty rate can remain in effect for any new purchases. Defaulting on credit cards is a bad idea, no matter how much immediate upside it has by keeping the money versus paying your card bills.
Credit Report and Credit Score Impact
Late payments are added to your credit report as you become 30, 60, 90, 120, and 180 days late. As you’re likely thinking, these late payments are going to hurt your credit score. If lenders see that you have credit card delinquencies and late payments, they’ll likely not lend you anything.
Six months (or 180 days) after you stop making your credit card payments, your account will be charged off. In this case, the credit card company writes off your unpaid debt as a business loss.
While you no longer owe money, you get a serious blemish on your credit report that will stay there for the next seven years, alerting everyone that you once defaulted on a credit obligation.
One of the most annoying things about not paying your credit card bills is the collection calls. Bill collectors are going to contact you by phone, mail, text, chat, social media, or email to remind you of your credit card payments. While you may want the calls to stop, they won’t.
You do have a few options, the Fair Debt Collection Practices Act is something you may want to get familiar with as it allows you to send a written cease-and-desist letter telling them to not contact you anymore. While that will apply to the 3rd party bill collectors, the original creditor can still contact you.
If you’re only a few days or weeks behind, the calls won’t be consistent. In fact, you’ll rarely get contacted by them. As you get further behind, you’re going to get calls more frequently. If they have trouble contacting you, they could take up legal action.
Accounts To Collection
Most collection agencies receive charge-off accounts when someone has defaulted on their credit cards. Once here, they move from one collection agency to another until they are paid or discharged. Your original creditor can sue you for the debt until it’s paid or settled in bankruptcy. Statutes of limitations can protect you from a lawsuit judgment after a certain amount of time, but that account has to be dormant for years.
What Can I Do?
If at all possible, try to salvage your account and protect your credit. If you can’t afford your credit card payments, consider contacting a consumer credit counseling agency that can help you explore your options. Your credit card statements include the number of a credit counseling agency.
You should also reach out to the credit card lender and let them know about your situation. Due to COVID-19, many lenders are working with their customers to help them with bill payments.
The last thing you want to do is default on your credit cards. If you can pay anything, that’s better than ignoring the situation. Defaulting on credit cards can damage your credit scores for years to come, so before you don’t pay, try your best to work with the lender.
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