Missing a payment or paying your credit card balance late is something that happens to a lot of people — more often than not, because of circumstances beyond their control.
So if you’re stressed over an unpaid credit card bill, you’re not alone.
We’ll walk you through exactly what to expect if you don’t pay. We’ll also discuss how you can pay off your debt and rebuild your credit score after a missed payment.
What happens when I stop paying credit cards?
Missing the odd credit card payment now and then doesn’t sound like a big deal, right?
Unfortunately, it kind of is.
On-time payments are crucial in the formula used in FICO credit scores — the most widely-used measure of consumer credit risk in the United States. Even a single missed payment can increase your interest rate and hurt your credit score, affecting you for years to come. In fact, your credit score will immediately start to drop once a payment day passes.
Here’s a timeline of what happens when you ignore credit card payments:
- Within two months of a missed payment, your card issuer will charge late fees and revoke your introductory APR. This means you’ll have to pay a higher interest rate. Your card company could also report your account as “delinquent” to the credit bureaus for failing to make the minimum payment on time, which could impact your credit score for up to seven years.
- By the third missing payment, you can rack up $100+ in late fees, along with the interest accumulation on your balance over time. Your card issuer will prohibit you from making new purchases, affecting your utilization rate and, ultimately, your credit score.
- Beyond three missed payments,your credit card issuer can resort to a court judgment which, if decided in their favor, will result in you having to pay wage garnishments.Alternatively, they may deem your account as a “charge off,” at which point your debt gets sold off to a collection agency.Instead of the original creditor chasing you down, a third-party debt collector is now responsible for collecting from you. The debt does not disappear, and.your account now has late fees, interest accumulation, and an increased APR. Credit bureaus will also be informed that you have a “collection account” - further damaging your credit score.Lastly, you will receive a Form 1099 for “canceled debt” from the IRS, requiring you to pay taxes on the debt.
At this point, your credit score and report will be shot—making it near impossible for you to open new lines of credit. You will also have a more difficult time applying for loans, renting an apartment, buying a truck, or even securing a job. This negative impact only worsens if you replicate this behavior across multiple cards.
This negative impact only worsens if you replicate this behavior across multiple cards.
What if I still don’t pay the debt?
For credit card debt, ignorance is not bliss.
When this happens, it’s best to respond to the judgment with legal counsel. Hire a lawyer to represent you and keep track of all your paperwork to ensure a fair agreement between you and the creditor.
If you fail to respond or defend yourself in court, the situation will result in a default judgment against you — meaning the judge awards the creditor with everything they ask for in the lawsuit. This gives them free hand to force repayment in multiple ways:
- They can garnish your wages.
- They can freeze your bank accounts.
- They can put a lien against your assets.
- They can charge legal fees accrued in collecting your debt.
What can I do about a missed payment?
You’ll want to pay your credit card as soon as you can — before the consequences start to mount up. But, if you find yourself in a situation where a missing payment is inevitable, these are the immediate steps you need to take:
- Make any payment possible, even if it’s not the full amount. If you pay as much as you can towards your bill, it will show your credit card provider that you’re actively trying to reduce your balance.
- Call up the credit card issuer to explain your situation. The Consumer Financial Protection Bureau recommends that you detail the following:
- The reasons for failing to meet the minimum monthly payments
- The amount that you can realistically pay
- The timeframe for when you’ll stop falling behind and restart regular payments.
Here are some general tips to help bring your credit score back up:
- Pay off your debt as much as possible. You can do this by paying more than the monthly minimum, slowly chipping off any outstanding payments you have. This will keep your credit utilization rate low — bringing your score a bit higher.
- Pay early and often. Complete your monthly payments as soon as possible—and with multiple payments throughout the month — as this will keep your balance lower and your score higher.
- Have them remove your late payments once they’re paid off. More than having the account recorded as paid, convince the card issuer (or debt collector) to remove the account altogether. This will have a bigger impact on your credit score.
- Increase your credit limit by asking for an increase on your current cards or opening a new card. The higher your available credit limit, the lower your credit utilization rate—just don’t max it out every month!
- Check for errors on your credit report that could be pulling your credit score down. You’ll be able to dispute them and have them removed. Some common errors are fraudulent accounts and misreported payments. Roughly 1 in every 4 Americans have an error on their credit reports, so it’s worth a shot.
If you’re truly caught in a financial bind and won’t realistically have enough money to pay off your debt at any time in the near future, these are your options:
- Consider debt consolidation through a balance transfer credit card or a single loan which you can use to pay off multiple debts — this helps if your interest rates have increased to an unmanageable level.
Balance transfer credit cards will have a 3-5% transfer fee, but they will give you an interest-free period to pay off your balance.
Alternatively, taking out a debt consolidation loan will give you a new repayment schedule, with APRs ranging from 3-36%.
- Seek credit counseling agencies if your financial situation is keeping you from resuming regular payments. For a small fee, these nonprofit agencies will help you avoid bankruptcy by guiding you through the process, minimizing interest rates, reducing late fees, and negotiating a debt management plan with your creditor. You can scout for counselors in the National Foundation for Credit Counseling’s resource.
- Possibly file for bankruptcy if you have a judgment ruled against you and you still have no means to pay off your debt. Filing for bankruptcy is legally saying you cannot pay your debt, forcing debt collectors to stop most of their actions.
These are the two kinds of bankruptcies:
- Chapter 7 bankruptcy wipes out much of your debts, but will remain on your credit for as long as 10 years. This bankruptcy type requires a third-party trustee to liquidate your valuable possessions, allowing you to pay your debt collectors — even if it’s only partially.
- Chapter 13 bankruptcy is available for those with a regular income, allowing individuals to develop a three-to-five-year repayment plan. This plan is coordinated with a third-party trustee who’ll pay the debt collectors for you.
This bankruptcy stays on your credit for seven years. In most cases, this bankruptcy is preferable to Chapter 7, as you won’t lose your personal property.
Credit card debt is easier to manage when you pay your balance consistently. It gets harder to clear once the missed payments begin to stack up — potentially ruining your credit score for years to come.
If you want to live a debt-free life, make sure to meet your credit card payments regularly and on-time. Take the necessary steps to protect your credit, especially when financial circumstances are working against you.
This way, it won’t escalate into a serious problem that could financially cripple you in the long term.
What is the difference between an original creditor and a debt collector?The original creditor is the company that issued the credit card to you. If you missed payments, they will first attempt to collect from you themselves. If they can’t, they may sell your account to a debt collector—a third-party company contracted to collect unpaid debt.
Will my debt disappear once I die?When you die, the credit issuer will be notified and should stop assessing penalties.However, if you live in a state which recognises community property, your debt will often be transferred to the next responsible party. This could be any of your property co-owners, spouses, or an estate.
Will my debt disappear if I leave the country?Your credit card history will not follow you out of the country. However, debt collectors can still chase you for payment—like by filing a lawsuit against you and going after the assets you’ve left behind.Whenever you return to the US, these legal repercussions will still remain, so no - your debt doesn’t simply disappear when you leave the country!