What Will Happen If I Stop Paying My Credit Cards?
Credit cards can be a useful tool when used responsibly. When a young person is just getting started with building a credit history, using a low-limit unsecured credit card and making consistent monthly payments helps develop a track record that leads toward developing a healthy credit score and profile.
The same applies to individuals in the process of rebuilding a credit score and profile following an adverse financial event such as bankruptcy. Credit cards also serve a useful purpose in the context of responsible budgeting when monthly cash inflows are predictable but somewhat untimely, or in case of emergency. However, when credit cards are used irresponsibly by overspending on luxury goods and experiences, they become a curse.
Even worse, it can be tempting for some individuals to simply stop paying their monthly credit card bills. After all – what’s the worst thing that can happen if you stop paying your credit card bills? Let’s take a closer look.
Credit Card Bills
Like any other monthly obligation, you are responsible for paying your credit card bill on time each month. Nothing good comes from skipping out on paying your credit card bill. Sure, you may feel a little relief if you don’t pay it – but make no mistake – negative consequences begin brewing almost immediately after you miss a payment.
For starters, you’ll incur a late fee (usually $25 or more) and the following month’s minimum payment will increase in size because of the missed month and late fee. You’d better do your best to make that following minimum payment because the stakes will quickly rise if you don’t. Once your account becomes sixty days past due (two consecutive missed monthly payments), penalty APR kicks in and your interest rate rises dramatically.
Up go your finance charges, and the higher interest rate – penalty APRs are frequently as high as 29.9% – each month makes it much harder to pay off your balance. Every month your minimum payment keeps rising as late fees get thrown onto the pile. Not good.
Credit Card Collections
Once the extremely high penalty APR activates, you’re already in trouble. Things have quickly gotten expensive and it’s not as if your credit card issuer has fallen in love with you, either. Even if you bring your account up to date, the penalty APR remains in effect on your existing balance and new purchases until you make six consecutive monthly payments on time.
That’s your best case – and even after those six months, the penalty APR often applies to new purchases. And what happens if you don’t catch up on your late payments? Your credit card billing department will contact you with increasing frequency over the phone and via text, as well as through email and regular mail, demanding payment.
It quickly becomes clear that they’re not going away and that your delinquent credit card account has become your mess to clean up. Meantime, the three major credit bureaus (Experian, Equifax, and TransUnion) are notified of your account delinquency on an ongoing basis, and your credit report gets stained with late payment notices at the 30, 60, 90, 120 and 180 day hallmarks.
Credit Score Impact
Late payment notices remain on your credit report for seven years and make your credit score go down, making it more difficult for you to obtain additional credit in the future at favorable terms. Your credit card company will continue contacting you with notices that your delinquent account is approaching “charge-off” status and that you are in further danger of falling into default.
Sometimes when an account is greater than ninety days past due, the credit card company will offer debt settlement – which if you can afford it – is a way out and worth doing. When a card issuer offers debt settlement, you are given the opportunity to pay less than the full balance owed on your account through one lump sum payment.
Settlement will also be noted on your credit profile and typically has an adverse impact on your credit score as well. If your account remains delinquent after 180 days, your credit card issuer will place it into “charge-off” status, writing it off at a loss and selling it to an outside collections agency for a fraction of the balance.
This becomes a serious stain on your credit report that remains for seven years and alerts all future potential creditors that you defaulted on a credit obligation, lowering your credit score and impacting your ability to access a home mortgage, auto loan or additional form of credit in the future.
Pay Your Credit Card Bills
As you can see, it’s just not worth the trouble to neglect paying your credit card bills. Paying penalty APR, incurring late fees, watching your minimum payments climb and your finance charges rise while your credit card company keeps relentlessly contacting you – none of this is any fun.
Not to mention that calls from the collection agency that inherits your charged-off account aren’t exactly a pleasure either. Meantime you get to watch your credit score head lower and you’ll have to live with the stains of delinquent payments and default on your credit profile for years to come. Why do this to yourself?
Instead, make it a habit to submit timely payments on all of your credit cards each and every month – and for more than the minimum payment amount whenever possible. This way, you will ensure that you stay out of trouble with your credit card companies, maintain a healthy credit score and profile, and position yourself to access additional credit in the future when you may need it.
About The Author: Steven Brachman
Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.
Time and again, I did not know how to handle my debt
Time and again, I did not know how to handle my debt. Even when I paid my credit cards off, a few months later I was back in the same situation. But this year is different. I contacted United Settlement...
Business debt relief is what I needed when I contacted the United Settlement crew
Business debt relief is what I needed when I contacted the United Settlement crew. They are committed to helping people like me who requires more help with business debt problems. I had several loans out...
Student loan debt was the reason that I reached out to United Settlement
Student loan debt was the reason that I reached out to United Settlement. I had about 200K plus in student loan debt for my business degree. I recognized that I had to do something when I struggled to make...
There is nothing worse than falling ill and then having to deal with super expensive medical bills
There is nothing worse than falling ill and then having to deal with super expensive medical bills that you really do not have the patience or experience to handle. I was pleased with my experience with...
I took out a few personal credit cards to open my boutique
I took out a few personal credit cards to open my boutique. When than money ran out, I went on to take out more loans for my business. However, this quickly turned into a disaster. Today, I now have a mountain...
Who knew that auto loans were so negative for your credit lines
Who knew that auto loans were so negative for your credit lines? Especially, if they are not paid off right away. As a married couple, we had vowed to keep auto loan debt at bay. But, we found ourselves...
I didn’t have a ton of debt when I contacted United Settlement
I didn’t have a ton of debt when I contacted United Settlement, but what I wanted from them was some information about how to handle my debt management. I knew that I needed some more information to get...
Federal student loans were the reason I ended up at United Settlement
Federal student loans were the reason I ended up at United Settlement. I had about $200K to pay back and I was not quite sure where to tackle that debt once I got out of school. But I reached out to that...
Everyone knows how horrible student loans are
Everyone knows how horrible student loans are. For me and my family, they had become more than just an annoying monthly bill. They had taken over our lives. That’s why I decided to take action and find...
I wanted to be more informed about my own personal and business debt
The number one reason I chose to contact United Settlement was I wanted to be more informed about my own personal and business debt. When you have credit card debt, it can be extremely frustrating. Especially...
I cannot believe I was finally able to find a company to actually help me pay off my debt
I cannot believe I was finally able to find a company to actually help me pay off my debt! I thought I would forever be chained to debt. But United Settlement offered me multiple solutions for paying off...
What your money can do for you.
The great reviews that you have thanks.
Dealing with high interest auto loan debt was difficult for me and my wife
Dealing with high interest auto loan debt was difficult for me and my wife. We thought we got a good deal, but it actually was a horrible loan. So, we reached out to United Settlement, and they got to work...
No one really wants to go bankrupt, and neither did my family
No one really wants to go bankrupt, and neither did my family. But fortunately, we did not have to go that route. It was our last resort, but United Settlement helped us figure out a way around bankruptcy...
I had been through about 5 different credit counseling agencies before I found United Settlement
I had been through about 5 different credit counseling agencies before I found United Settlement. I had read through their reviews and made the decision to move forward with them. I also was so impressed...
Save time and money
Just what I needed, already had a company I was working with and I switched because I was able to same some money. Brian and Alfred were really nice and helpful
As a business facing some unwanted financial difficulties
As a business facing some unwanted financial difficulties, we were at a loss for what to do next when our debt started to soar. We took a closer look at our financial situation by contacting United Settlement....
I had no clue how to create a debt management plan
I had no clue how to create a debt management plan and in fact, I didn't even know what a debt management plan was. Fortunately, I reached out to United Settlement before I had too much debt to tackle....
Being burdened by debt is one of the biggest struggles we faced as a family
Being burdened by debt is one of the biggest struggles we faced as a family. But these people at United Settlement were very helpful in deciphering the different debts we had and then coming up with a debt...
Student loan debt was my worst enemy before I ran into United Settlement
Student loan debt was my worst enemy before I ran into United Settlement. I really thought I would just have terrible credit for the rest of my life because I will never get out from underneath it. It was...