Consequences of stopping credit card payments

If you’ve ever had a credit card balance growing to the point where you feel like you’ll never be able to pay it off, the idea of ​​just stopping payments might seem appealing.

The balance is huge, and interest costs and possibly other fees are rising every month. It may seem impossible.

You may have other issues affecting your finances, such as unemployment, divorce, or a major medical event.

“Credit card debt isn’t usually the only problem,” says Leslie H. Thain, financial debt resolution lawyer and author of Life and Debt: A New Approach to Achieving Financial Wellbeing. “It’s not usually done in a bubble. It would be very unusual if someone said: “I have one credit card that I don’t want to pay, and everything else in my life is great.”

If this happens to you, keep reading about what you can do. And if you stop paying on your card, you will have to start improving your credit history. To do this, consider using Experian Boost, a free service that allows you to get credit to pay bills like utilities, phone, and streaming services on time.

What happens if you stop paying with a credit card

There can be many consequences if you stop making credit card payments. Keep reading to find out what can happen:

Your balance starts to grow rapidly

The first thing that happens when you miss a credit card payment, even for a few days, is that you take on the late payments.

“Most lenders will charge you a $25 fee anytime from the day following your due date until the 30th day after your due date,” says Todd Christensen, accredited financial advisor and education manager at Money Fit .

Your interest rate could be raised—perhaps significantly—as a result of being more than 60 days late.

“The company that issued your credit card may raise your interest rate to what is called the default rate. It’s essentially a penalty rate, which is typically between 25% and 30%,” Christensen says. “Some of our clients have been affected by default rates ranging from 60% to even 70% per annum.”

If your balance exceeds your credit limit, with all interest charges and late fees, you may pay over limit fees. You then pay more interest on that balance. Your credit card balance can easily double or triple as soon as you stop paying on it.

Your lender starts contacting you

You may first receive a late payment notification in the mail. It’s easy to ignore. The credit card issuer may then call you or send you an email or text message. Receiving calls and messages about an overdue account can be stressful.

“Foreclosure attempts can be brutal,” says Karen Beth Ford, financial advisor and author of Money Matters. “Let’s face it, almost everyone has mobile phones in their hands and you can ignore a phone call,” she says.

If you still don’t pay, he moves on to the next step.

Your credit card company may raise your interest rate to what is known as the default rate. In essence, this is a penalty rate, which is usually between 25% and 30%.

Your credit score takes a hit

Once your payment is 30 days past due, your card issuer will notify the credit bureau. One late payment on an otherwise intact credit history can drastically lower your score. Even if your score is less than ideal, another late payment can make things worse. Some people think that once their credit is bad, another ring can’t hurt. He can.

“The later your payment is, and the later the late payment occurs, the more it will hurt your credit history,” Christensen says.

Also, the more lagging accounts you have, the more it will affect your account.

If you’re struggling financially, a low credit score is the last thing you want, Thain says. A low credit score can especially affect people who are just starting out, say in their 20s or 30s, because they need credit as they settle.

If your credit score deteriorates, it will be difficult for you to get a new loan or mortgage on favorable terms. You can also see your insurance rates go up. You may not be able to rent an apartment or house, and you may even be denied employment.

It’s much better to do your best to keep your credit, even (or especially) during difficult times.

Your debt can be written off

After 180 days without payment, the credit card issuer will usually write off the debt. Writing off does not get rid of debt. Basically, this is an accounting procedure and you still have to pay according to the terms of your account. At this stage, the issuer usually sends the debt to an external or internal collection agency, where it continues to grow.

Collection attempts continue

The collection agency, in turn, is trying to get you to pay, and they may try to get you to settle for a lower amount. At this point, you may be looking at the statute of limitations in your state, or the state that applies to this account, hoping that the collection time will expire. However, the owner of the debt does not want this to happen.

Since credit card debt is not secured, there is a limit to what creditors can do. “This limit depends on the state you live in, your assets and your financial situation,” Thane says.

You are being sued for a balance

The owner of the debt, usually the collection agency, is likely to sue you at this point. If you have wages or other pocketable income, they can start getting paid out of it.

“When you have to pay on a credit card and you stop paying and it turns into fees, then they can take away your paycheck. Many employers won’t appreciate that,” says Ford. Note. If your only income consists of Social Security, disability benefits, or other protected income, they cannot limit your income.

Now your balance is not only bigger than when you started, but you’re making payments again, whether you like it or not. And these payments may be more than your minimum payments before you defaulted on your account.

The debt owner may also seize your assets, such as real estate or a car. A lien is a legal notice that gives the holder of the lien a security interest in property to secure the payment of a debt. If they put a lien on the property you own, they will get their money plus interest and expenses when you eventually sell.

If time passes, and you are not sued and you stop hearing about penalties, this does not mean that the problem has disappeared. They can still sue you at the last minute.

According to Thain, you could be sued in New York State in six years. The trial can last 20 years. This means that if you get back on your feet financially in a few years, the unresolved credit card balance that you stopped paying on now could come back and cause negative consequences.

What to do instead of stopping payments

Instead of stopping credit card payments, take a good look at your overall financial picture. If you don’t know how to improve your situation, talk to a non-profit credit counseling organization or a lawyer. Invite someone to your side and consider all possible options.

For some people, a strict budget and changes in their income or expenses may be all that is needed.

An unemployed or other debtor who simply needs temporary relief can be helped by a hardship relief program. Other credit card holders may have to negotiate the balance of their debts or file for Chapter 7 or Chapter 13 bankruptcy.

“If you work with someone like me, you have a plan. We have a strategy and plan in place to minimize the impact,” Thane says.

Your plan may include stopping payments, but as part of a controlled process.

“If you act haphazardly, you will have more mess and more consequences,” Thane said.

Thain sees a lot of misinformation online about credit card debt, some of which encourages people to stop making payments. Or there may be a lot of information that does not apply to you.

It’s much better to ask for help early in the game than to wait until the consequences of missed payments kick in.

“A lot of people think they figured out there will be no consequences,” Thain said. “There are consequences. Then they call us and say: “Help me now!”

Thane says people have a lot of thoughts when they stop paying their credit card bills.

“Maybe they get angry, sometimes they can’t pay,” she said. “Sometimes they think they can beat the system.”

However, if you don’t pay, by the time your unpaid debt runs out, you’re overstretched, your credit history is ruined, and your balance is much higher than it was when you defaulted. If you are not evidence of a judgment, you will probably still end up paying through a lien or lien on your property.

By making a strategic plan, following it and not giving up, you can take control of your life. Set goals and achieve them and you will have more peace of mind and a better financial future.

bottom line

There are two main reasons why you should never just give up and stop making credit card payments.

First, stopping payments on your account only makes things worse. This sets off a process that can drive you further into debt, destroy your credit, cause you even more stress, and negatively impact you for years to come.

Second, you have other options. You may need help, but if you solve your financial problems with your head, and not just give up on them, you will be in a much better position.

The actual consequences of not paying credit card debt depend on you and your circumstances.

“It’s so individual,” Thane says. “If you and I both have Amex accounts and we both owe the same amount of money, that doesn’t mean they will treat both of us the same.”

For example, a person over the age of 80 with no property or income other than Social Security benefits could be what is known as “judgmental evidence”. Lenders have nothing to confiscate and may not be as concerned about their credit score at this age.

“The impact will be less than for those who are younger, who work, own a home, need a loan and can be sued when the lender can enforce the money order,” Thane says.