If you’re thinking about stopping payments on your credit cards, you’re probably wondering what will happen. Here’s a look at the potential consequences of defaulting on your credit card debt.
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The Consequences of Not Paying Your Credit Card Bills
If you don’t pay your credit card bills, you will eventually be charged late fees and your interest rates will go up. This will damage your credit score and make it harder for you to get approved for new credit in the future. Additionally, your creditors may take legal action against you, which can lead to wage garnishment or seizure of assets.
Your Credit Score Will Suffer
If you stop making payments on your credit card bills, your credit score will suffer. This is because payment history is one of the key factors that goes into calculating your credit score. When you STOP paying your credit card bills, your creditor will report this to the credit bureaus, and your credit score will take a hit.
Your Credit Card Company May Raise Your Interest Rate
Another consequence of not paying your credit card bills is that your credit card company may raise your interest rate. This is because when you stop making payments, you become a “riskier” customer, and the credit card company wants to compensate for this by charging you a higher interest rate.
You May Be Charged Late Fees
If you don’t pay your credit card bill on time, you may be charged a late fee. Late fees can range from $25-$35, depending on your creditor. And if you continue to make late payments, your creditor may increase the late fee amount or start charging you an annual fee.
Your Creditor May Close Your Account
If you don’t pay your bill for an extended period of time (usually 6-12 months), your creditor may close your account and send the debt to collections. Once your debt is in collections, it will stay on your credit report for 7 years, even if you eventually pay off the debt.
You May Be Charged Late Fees
If you don’t pay your credit card bill on time, you could be charged a late fee. The fee could be up to $38, and it will be added to your balance. Your credit card company may also increase your APR.
Your Interest Rates May Go Up
If you’re thinking about skipping a credit card payment, know that there can be some pretty serious consequences. For one, your credit card issuer may raise your interest rate, which could have a lasting impact on your finances.
“Credit card companies can and do change interest rates on customers,” says Thomas Nitzsche, media relations manager for ClearPoint Credit Counseling Solutions. “In most cases, the new rate is applied to any balance you currently carry on the card, as well as to any future purchases.”
What’s more, if you have a balance on a card with a variable interest rate, the amount you’ll pay in interest could increase if the prime rate goes up.
You May Lose Your Rewards
If you regularly carry a balance on your credit card, you may be missing out on rewards from your credit card company. Many credit cards offer rewards for using their card, such as cash back, points, or miles. Often, these rewards are only available if you pay your bill in full each month. If you don’t pay your bill in full, you may still get the benefits of using the card, but you will not receive the rewards.
You May Be Sued
If you stop making payments on your credit card, the credit card company may eventually decide to sue you for the outstanding balance. If the credit card company sues you and wins, the court will enter a judgment against you. Once a judgment is entered, the credit card company can start taking steps to collect the money you owe, including wage garnishment and asset seizure.
Of course, you can always try to negotiate with the credit card company to try to work out a payment plan or some other arrangement before they sue you. And, if you are sued, you can always try to negotiate with the credit card company after the lawsuit has been filed.
What to Do If You Can’t Pay Your Credit Card Bills
If you’re struggling to make your credit card payments, it’s important to understand your options and what could happen if you can’t pay your bills. Depending on your situation, you might be able to work out a payment plan with your credit card issuer or even have your debt forgiven. But if you don’t take action, you could face serious consequences, including damage to your credit score, collection calls, and even a lawsuit.
Talk to Your Creditors
As soon as you realize you may have trouble making a payment, call your creditors and explain your situation. Many creditors will work with you to set up a new payment schedule that works better for your current financial situation. Some may even agree to lower your interest rate temporarily or waive late fees.
If you’re not able to speak with your creditor, or if they’re not willing to work with you, there are still other options available. You can reach out to a credit counseling agency or a nonprofit financial assistance organization for help.
Create a Budget
If you’re struggling to make ends meet, it’s time to take a hard look at your spending and create a budget. Determine how much you need to spend each month on essentials like housing, food, transportation, and health care. Then figure out how much you have left for other expenses.
If your income is less than your expenses, look for ways to cut costs. Can you get by with a cheaper cell phone plan? Is there a less expensive way to get to work? Could you buy generic brands at the grocery store?
Once you’ve figured out your monthly budget, see if there are any ways to increase your income. Could you get a part-time job? freelance gig? Raise?
If after taking these steps you still can’t make ends meet, it’s time to consider some more drastic measures.
Consider a Debt Management Plan
If you’re having trouble paying your credit card bills, one option you might want to consider is a debt management plan (DMP). A DMP is a repayment plan that can be used to pay off debts owed to multiple creditors.
Here’s how it works: You make one monthly payment to the credit counseling agency, which then uses the payment to pay off your debts (typically, the agency will pay your creditors more than the minimum payment due). While you’re in a DMP, you generally won’t be able to use your credit cards.
There are advantages and disadvantages to using a DMP to pay off your debts. One advantage is that it can help you get out of debt faster than if you were just making minimum payments on your credit card bills. This is because the credit counseling agency will typically negotiate with your creditors to get them to agree to accept a lower interest rate or waived fees. Another advantage is that it can help improve your credit score over time because the account will show as “current” on your credit report if you make all of your payments on time.
However, there are also some disadvantages. One is that there may be a set-up fee or monthly maintenance fee associated with enrolling in a DMP. Additionally, once you enroll in a DMP, you may be required to close some of your existing credit card accounts, which could impact your ability to use credit in the future if you need it. Finally, keep in mind that while a DMP can help improve your credit score over time, it won’t remove any negative marks from your credit report (e.g., late payments, collections accounts).
Consider Credit Counseling
If you’re struggling to make your credit card payments, you may want to consider credit counseling. Credit counselors can help you create a budget and offer money management advice. Some credit counseling agencies also offer debt management plans, which could help you pay off your debt in a three- to five-year period.
There are many reputable credit counseling agencies to choose from, but make sure you do your research before choosing one. Some companies may charge high fees or try to sell you additional services that you don’t need. Also, be wary of any company that promises to “fix” your credit or get you a “better” credit score in a short period of time. These are usually scams.
If you decide to go with a credit counseling agency, look for one that is accredited by the National Foundation for Credit Counseling or the Financial Counseling Association of America. Accredited agencies have been vetted by these organizations and have agreed to adhere to certain standards, including providing quality services and charging fair fees.
File for Bankruptcy
If you find yourself unable to pay your credit card bills, you may want to consider filing for bankruptcy. This option can help you get relief from your debt and give you a fresh start. However, it’s important to know that bankruptcy will have a major impact on your credit score and can stay on your credit report for up to 10 years. You should only consider this option if you have no other way to get out of debt.