There’s nothing wrong with getting behind on your credit card payments every once in a while. Perhaps you’ve thought about what would happen if you didn’t have any of your bills. Yes, it’s tempting to ignore your credit card bills, but there may be severe consequences to doing so. These consequences will only get worse as you continue to ignore your bills. Also, the stress of getting deeper into debt probably is not going to be too good for your health.
Here’s what will happen if you don’t pay your credit card bill.
You’ll pay late fees
Even missing one payment means paying late fees. Depending on your credit card’s terms, you will pay a flat rate fee. You’ll get charged another late fee if you miss another payment and incur interest on the principal payment.
Some credit card companies may increase your interest rates automatically as soon as you miss a payment. The next month, your payments will get more expensive as you keep accumulating interest on increased rate. This means you’ll get even deeper into debt because you’ll owe even more on your bill.
Any late payment may affect your credit score. Many credit card companies may not report late payments right away. If you’re more than a month behind on your bills however, your credit card company will report it to credit reporting agencies. Once this is reported, your score will be affected. As for how it may drop, it depends on how many and how long your late payments are.
Your debt will go to collections
If you keep ignoring your payments, your bill may be flagged by your credit card company. Most credit card companies will charge off the account, meaning they will write off the debt as a loss. This usually happens after 90 days past due. In this case your credit card company sells your debt to a collection agency.
If this happens, this activity will appear on your credit report. What that means is that there’ll be a record of the debt owed to your credit card company as well as to the collection agency. This activity will be on your credit report for seven years from the original date of your late payment.
If and when your debt goes to a collection agency, you may start to receive calls about your credit card bill, sometimes even multiple times a day. Not all of these companies are going to be mean about it, but you could be unlucky. Your credit score will also continue to go down further.
At this point, if you try to get another loan, you’ll probably be denied. Even if you do get another loan, you’ll get it at much higher rate and at less than favorable terms. You may even find it harder to do things like moving into another apartment, getting a cell phone, opening a bank account or even getting a job offer. Yes, employers can’t get your credit score, but they could check your credit history as part of the hiring process.
And that’s not all, in some states, you may get a 1099-C form from the IRS for the debt, which means you’ll be asked to pay taxes on the charged off debt.
You may get sued
Your credit card company (or collection agency) could take you to court to try to get their money back. If they do file a lawsuit, a civil judgement will go on your credit report since it’s a public record. This negative information stays on your credit report for seven years from when the lawsuit was filed. Just like a charge off, this is a very serious matter and can prevent you from getting personal loans and other important things like getting goods or even renting a new apartment.
Depending on the final verdict you could face having your wages garnished or worse, having a lien placed on your property. No matter what, you’ll have to pay back your debt which has significantly increased since your first late payment.
Get help paying back credit card debt
Ignoring your credit card debt is not the answer. Instead of throwing away your bills, consider getting advice from a reputable credit counselor. There are two different types of debt solutions: debt settlement and credit counseling.
Debt settlement companies help you negotiate reduced payments with your creditors. It’s an extreme option that may destroy your credit because you’re being asked to stop paying your loans. Instead, your payments will go directly to the debt settlement company. The company will then negotiate with your creditor to lower the amount you actually owe. That is, if the debt settlement company can settle all of your debts. Otherwise, the credit card company can sue you for failing to make payments.
You’ll need to be really careful before agreeing to any terms with these organizations. Some debt settlement companies may charge high fees for their services or promise things they cannot keep. For example, some shady companies will assure you that they can remove negative information on your credit report. This is not true. The Federal Trade Commission states that you cannot remove any information legally from your credit report if it’s accurate. If you’re unsure of what to do, check the Credit Repair Organizations Act or do your own due diligence before you agree to pay for any service.
A credit counseling company doesn’t help you pay your debt. Instead these companies provide education to help you manage your finances better, including your debt. Some may provide debt management plans with the guidance on how to negotiate lower interest rates or monthly payments. It doesn’t mean that you’ll end up paying less than what you owe. The advantages of using this service is that it could help alleviate some of the stress with your finances.
No matter what, make sure to see out a reputable credit counselor. Good ones will ask you to go through credit counseling and education programs before giving you a plan for managing your debt. They will also walk you through the entire process and answer any questions you have on the financial stuff.
The bottom line
It’s not fun to pay back large amounts of debt, but ignoring them isn’t the answer either. Not only will you end up paying more than you originally owe, but you could also face legal consequences. Think carefully whether or not you really want the added stress of collection agencies calling you, having a lawsuit filed against you and even having your wages garnished.
If you find it virtually impossible to pay your credit card bills on time, seek help. Be proactive and call your credit card company to see what options are available. There are also many non-profit and government approved agencies that can provide credit counseling. It can help you make sure you don’t keep drowning in debt.