What Happens If You Stop Paying Your Credit Cards

What Happens If You Stop Paying Your Credit Cards – Not paying your credit card bills can have a number of negative consequences. Interest will accrue, you may have to pay fees, your credit score may decrease, and if the company is unable to collect from you, it may sell your account to a collection agency, which you may begin trying to call, email or even contact you. in social networks.

The collection agency may be able to obtain a judgment against you, potentially garnishing your wages or bank account (depending on the type of debt and the state you live in). In short, your financial situation may be discouraging.

What Happens If You Stop Paying Your Credit Cards

Late payments can negatively affect your FICO® score. FICO® is a company that prepares credit scores that lenders use as a factor in determining whether they should lend you money and, if so, at what interest rate. In fact, according to FICO®, 90% of major lenders use your score to make this decision.[1]

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FICO® uses a credit score calculation system that places more weight on your payment history. This is the most important factor in determining your score and accounts for 35%. If your payment is only a few days late, it probably won’t count against your credit if you pay immediately (although you may be charged a late fee). However, if the deadline is a month or more away, it will affect your score. Here’s what can happen:

Please note that credit card companies may not authorize new credit card transactions after your account becomes delinquent.

When you miss credit card payments, late fees can be added to your credit card balance. Credit card delinquent fees aren’t cheap: they can run up to $40 each time.[5] Additionally, your credit card interest rate may increase to a higher penalty rate (called a penalty APR).

When you add up interest, fees, and your credit card balance, it can add up to a lot of unpaid debt. When your account is overdrawn, your balance may exceed your credit limit and you will have to pay more than the minimum payment. You will need to pay the minimum amount due plus more than your credit limit to avoid additional charges.

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If you don’t make payments after four to six months, your loan can be terminated. At that point, your credit card issuer may refer your account to a debt collection agency.

You may start receiving phone calls, letters or emails from a collection agency or debt collector rather than your original creditor. It also allows negotiation of limits.[7] Additionally, the charge can remain on your credit report for up to seven years.

Your credit card company will report late payments on your credit card and it will be included on your credit report. You can check if this has happened and if there may be errors on your credit report by requesting a free copy of your credit report.

You are usually entitled to one free credit report from each of the three credit bureaus once a year. You can request one at annualcreditreport.com. However, in 2022 you will be entitled to one free credit report per week.[9]

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You can also request additional credit reports from the three major credit bureaus: Experian, TransUnion, and Equifax. By law, they cannot charge you more than $13.50 for an additional credit report.[10]

If you stop making payments, the creditor or debt collection agency may sue you to collect the money owed. If a judgment is issued against you, your wages or bank account may be garnished or your property may be garnished. Please note that the wage regulations in each state will vary, so be sure to check with your state’s labor department to understand your state’s laws.[11]

Certain federal benefits are protected from garnishment, including Social Security, veterans and railroad retirement benefits; federal student aid; military annuities and survivor benefits; Federal Emergency Disaster Relief; and Supplemental Security Income.

Your creditor can sue you in civil court and then garnish your wages if they win a judgment against you. However, you can’t be arrested or jailed for falling behind on debts like credit cards or student loans.

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Borrowers who fall behind on their credit card payments or are tempted to leave because of mounting debt can take several steps to minimize the damage to their credit and personal finances.

Create a budget, track your spending and adjust your habits. You can use several methods to budget your money, such as the 50-30-20 plan, the envelope method, zero-based budgeting, or goal-based budgeting.

Under the 50-30-20 plan, 20% of your after-tax income is allocated to savings and paying down debt. (Under this plan, you set aside 50% of your after-tax salary for needs and 30% for necessities.)

There are also budgeting apps available to help you keep track of your finances over the long term. Monitoring your online bank accounts and setting up automatic payments can help you avoid delays.

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Contact your lender to see if you can work out a payment agreement or short-term hardship relief. If you believe that a reported late payment or non-payment is the result of an error, you can notify your creditor and dispute it directly with them. You can support your claim by including documents such as a canceled check, receipt or online payment confirmation.

If the lender finds that an error has been made, the company will send the corrected information to the credit bureau, which will then correct the error. Updated information may not appear on your credit report for some payment cycles.[12]

You can hire a debt settlement company to negotiate a debt settlement plan on your behalf. You will pay a fee for this service and it can cost you anywhere from 15% to 25% of what you owe. If the company advises you to stop making payments while you settle, you may incur additional late fees and interest during that time. Additionally, if a settlement is reached, you may be required to pay taxes on the settlement amount.[14]

Contact a credit counselor or credit counseling agency. A nonprofit credit counselor can help you create a debt management plan that can help you start paying off your unsecured debts, such as credit cards.

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You can consolidate all your credit cards into one loan. Consolidating your loans means you can potentially get a lower interest rate in addition to making one monthly payment. However, if you don’t have a good credit score, you may not qualify for a better interest rate on a solid loan.

Paying off credit card debt can seem daunting and even overwhelming if it’s a lot. Even if you can’t pay off the entire amount at once, paying more than the minimum payment can reduce the amount of interest you pay and shorten the time it takes to pay off the amount you owe.

You can also follow specific loan repayment strategies by prioritizing different payments. With the snowball method, you pay the least for all but the smallest loan. For the smallest debt, pay as much as you can until it’s paid off. You then transfer what you paid on the canceled debt to the next smaller debt and continue the process until you have paid off all of your debts.

The avalanche method, on the other hand, targets your highest-interest debt first, thereby reducing the amount you pay in interest.

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Whatever strategy you use to pay off what you owe, there are ways to get out of credit card debt. Ignoring it won’t make it go away, but with time and patience, you can pay off the debt little by little each month. As you continue to pay down your credit card debt, you will find out which method works best for you to help you manage your debt.

Ana González-Ribeiro, MBA, AFC® is a Certified Financial Advisor® and bilingual personal finance author and educator dedicated to helping populations in need of financial information and advice. His news articles have appeared in various media outlets and websites, including the Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. He also founded the personal finance and motivation site www.AcetheJourney.com and translated Catherine B. Hoare’s book, CFP Financial Advice for Blue Collar America, into Spanish. Ana teaches personal finance courses in Spanish or English on behalf of the W!SE (Work in Support of Education) program. He has taught workshops for non-profit organizations in New York.

Our goal is to provide readers with up-to-date, unbiased information on credit, financial health, and related topics. This content is based on research and other relevant articles from reliable sources. All content is written by experienced contributors in the financial industry and peer-reviewed.

Disclaimer: Does not provide financial advice. The content of this page provides general information for users and is not intended to provide legal, financial or regulatory guidance.

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