Credit card debt can be a heavy burden to carry, but what happens if you can’t make your payments? Read on to find out the consequences of defaulting on your credit card.
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The Consequences of Not Paying Your Credit Card
If you don’t make your credit card payment on time, you will be charged a late fee. Your interest rate will also go up, and you may be reported to the credit bureau. This can all have a negative impact on your credit score.
Your credit score will drop
If you don’t pay your credit card bill, the issuer will report your delinquency to the credit bureaus, which will damage your credit score. The size of the drop will depend on how overdue you are on your payments; 90 days late is much worse than 30 days late. If you’re 60 days late, you may see your score drop by as much as 100 points or more.
You will be charged late fees
If you don’t make at least your minimum payment by the due date, you’ll generally be charged a late fee.
Your credit card issuer may also raise your interest rate if you pay late. That’s because the issuer will regard you as a higher-risk borrower.
The increase in your rate will apply to balances you carry going forward, as well as any balance transfers or cash advances you make. So if your card’s APR is currently 17%, a late payment could trigger a penalty APR of 31% — a costly consequence.
Your interest rates will increase
If you don’t pay your credit card bill, you will be charged late fees, your interest rates will increase, your credit score will drop, and you could lose your grace period.
Your credit card issuer may also report your late payments to the credit bureaus, which will further damage your credit score. In addition, if you don’t pay your bill, the issuer may close your account and send your debt to a collection agency.
Collection agencies are not regulated by the government like credit card issuers are, so they can charge very high fees. They may also sue you for the debt, which would result in a judgment against you. A judgment is a public record that can damage your credit score and make it difficult to get a loan or rent an apartment.
You may be sued
If you stop making payments on your credit card, you may eventually be sued by your credit card company. If the lawsuit is successful, the credit card company will receive a judgment against you. A judgment is a court order that states that you owe the credit card company a certain amount of money. Once the credit card company has a judgment against you, it can take steps to collect the money you owe, including garnishing your wages or putting a lien on your property.
What to Do If You Can’t Pay Your Credit Card
If you’re struggling to make your credit card payments, you’re not alone. Millions of Americans carry credit card debt, and many of them have trouble paying their bills each month. If you’re having trouble paying your credit card bill, there are a few things you can do to ease your financial stress. Let’s take a look at a few options.
Call your credit card company
If you can’t pay your credit card bill, the first thing you should do is call your credit card company. Explain your situation and ask for options. Many companies will work with you to create a payment plan or to lower your interest rate. Some may even waive late fees.
Create a budget
If you’re struggling to make ends meet, the first step is to create a budget. Figure out how much money you have coming in and what your regular expenses are. Once you know where your money is going, you can make changes to ensure that your spending aligns with your priorities.
If you’re not sure where to start, there are plenty of resources available to help you create a budget that works for you. You can find information and tools online, or talk to a financial advisor for personalized assistance.
Once you have a budget in place, stick to it as best you can. That means only spending money on things that are truly necessary and avoiding unnecessary purchases. When temptation strikes, remember why you’re sticking to a budget in the first place. If necessary, give yourself a set amount of cash each week for discretionary spending, so that you don’t overspend.
If your credit card debt is due to uncontrolled spending, making changes to the way you handle money can help you get control of your debt and avoid future financial problems.
Consider a debt consolidation loan
If you’re struggling to make your credit card payments, you might be considering a debt consolidation loan. This type of loan can be helpful if it allows you to pay off your credit card debt at a lower interest rate. But there are some things you should know before you apply.
Debt consolidation loans are often personal loans, which means they’re unsecured. That means they’re not backed by collateral like a home or car. Personal loans are generally available in amounts from $1,000 to $100,000, and you’ll have to pay them back over one to seven years.
The interest rate on a debt consolidation loan is important, but it’s not the only thing to consider. You’ll also want to look at the fees the lender charges and the terms of the loan. For example, some lenders charge origination fees, which can range from 1% to 5% of the loan amount. And some loans have prepayment penalties, which means you’ll have to pay a fee if you pay off the loan early.
Before you apply for a debt consolidation loan, make sure you understand all the terms and conditions. And be sure to compare offers from multiple lenders to find the best deal.
Seek credit counseling
If you’re struggling to make ends meet, you may want to seek out credit counseling. Credit counseling is a service that helps consumers understand how to manage their debt and develop a plan for paying it off. Credit counselors typically work with creditors to negotiate payment terms that are more manageable for the consumer. They can also provide budgeting and money management advice to help the consumer get their finances back on track.
There are many credit counseling services available, both online and offline. Look for a service that is accredited by the National Foundation for Credit Counseling or the Financial Counseling Association of America. These organizations require their members to adhere to high standards of ethics and professional conduct.
If you’re not sure where to start, you can contact your credit card issuer and ask for a referral to a credit counseling service. You can also check with your local consumer protection agency or Better Business Bureau.