Do you have a credit card? If so, you aren’t alone. A recent Yahoo! Finance article suggests that 81% of American adults have at least one credit card. And why not? Credit cards offer flexibility by making it easy to buy most of what we need and many of what we want.
But having a credit card means great responsibility. A credit card doesn’t just give you the freedom to spend and spend. When you sign that credit card agreement, you are also agreeing to not only pay back what you spend, but any fees and accrued interest, too.
That is why responsible borrowing matters. Simply put, if you don’t think you’ll be in a position to make your monthly payments and to fulfill your side of the credit card agreement, then you shouldn’t apply for the credit card in the first place.
Unfortunately, however, things happen. Layoffs occur. You may be faced with unexpected debts. Whatever it is, sometimes we get in a pinch, and that amount we owe each month might seem like too much to bite off.
So, what happens then? In this article, we’ll explain what happens if you stop paying your credit card bills.
Quick Answer: What Happens If You Don’t Pay Your Credit Card Bills?
If you stop paying your credit cards, you may face late fees and other interest-related consequences based on your card agreement. Once a payment is at least 30 days late, the issuer may report it to the credit bureaus.
Continued nonpayment can lead to further delinquencies, account closure, a charge-off, collections, and even a lawsuit. Negative payment history and charge-offs can sit on your credit report for seven years. That’s a long time. And remember, a charge-off doesn’t mean you no longer owe the debt.
What Happens After You Miss a Credit Card Payment?
Though all credit cards are required to offer a grace period of 21 days, it is important to understand just what that grace period means. It doesn’t mean that you can wait for 21 days after the due date to make your payment. Rather, the grace period means there must be at least 21 days between when your credit card statement is generated and when your payment is due. Basically, if you pay your balance within this period, you won’t be charged interest on applicable purchases.
Why are we sharing this information? It’s because there is a common misconception among new borrowers, and especially new credit card holders, that there may be forgiveness for late payments. And the reality is that this is rarely the case.
Here’s actually what happens when you miss a credit card payment (in other words, become delinquent):
- 30 days late: Your credit card company will most likely report your missed payment to the credit bureaus. Expect that this will hurt your credit score by as much as 60 to 80 points.
- 60 to 90 days late: If you keep missing payments, your credit card company will continue to report those misses to the credit bureaus. They may also restrict or close your account, and you could face a penalty annual percentage rate, which is going to be higher than your current interest rate.
- 120 to 180 days late: At this point, your account may be approaching a charge-off. The issuer may close the account and increase collection efforts. If the account is charged off, you still owe the unpaid debt. And, your credit score may drop by as much as 100 to 150 points.
What Does It Mean When a Credit Card Is Charged Off?
As you can see above, there are serious consequences for failing to pay. Those balances don’t just go away, and no one thinks twice about it. And when an account remains unpaid for an extended period, the credit card issuer may eventually decide that collecting the balance is unlikely and handle the account differently on its books. In most cases, this results in a charge-off.
If your credit card is charged off, it means the creditor has determined that the account is unlikely to be repaid and has categorized it as a loss for the purposes of accounting. But here’s the important part. A charge-off doesn’t magically erase your debt. You are still accountable for the balance you owe.
In most cases, your credit card company will keep pursuing the debt. They’ll either hire a collection company to go after you, or they’ll sell it to another company that can pursue repayment. This means you won’t be left alone until you’ve fulfilled the responsibility.
A charge-off can stay on your credit report for up to seven years, and this starts with the original missed payment that eventually led to the account being charged off. Paying the debt later doesn’t automatically remove that history. Instead, your credit report should be updated to reflect that the charged-off account has been paid or settled, as applicable.
How Long Do Missed Payments Stay on Your Credit Report?
Now that you understand what can happen if you fail to pay your credit card altogether, let’s talk about what happens if you miss a credit card payment.
First, while we never want to suggest that missing a credit card payment is an option or a wise choice, your credit card company may forgive one missed payment. But this forgiveness doesn’t mean you don’t have to catch up. You do. It simply means your missed payment likely won’t be reported to the credit bureaus (Experian, Equifax, and TransUnion) until you are at least 30 days overdue. In the meantime, you will likely be charged a $30 late fee for your first missed payment and up to $41 for any subsequent late payments.
But just because your credit card company likely won’t report you for at least 30 days doesn’t mean they won’t report you at all. Once you’re more than 30 days late, the credit bureaus will be notified. And just as with a charge-off, a late payment will also stay on your credit report for up to seven years.
Can a Credit Card Company Send Your Debt to Collections?
Earlier, we mentioned that a collections company may come after you if you fail to pay your credit card bill. And it is absolutely lawful for them to do so. As we shared, someone has to take responsibility for that debt, and you are the one who will be held responsible.
When a collections company starts going after debts, they will likely pursue one or more of the following tactics:
- Send letters or other written notices. A debt collector may mail you information about the debt, the amount owed, and how to respond to or dispute it.
- Call you about the debt. Collectors may contact you by phone to request payment or discuss repayment, but federal law places restrictions on when and how they can communicate with you.
- Pursue legal action. In some cases, a creditor or debt collector may file a lawsuit seeking repayment. If you receive a court summons or other legal documents, do not ignore them.
What Should You Do If You Can’t Make Your Credit Card Payments?
It can be stressful to find yourself in a situation where you can no longer meet your financial obligations. However, ignoring those obligations, including your credit card bill, is never the best strategy.
Instead, if you find yourself in a tight situation, consider the following options:
- Reach out to a trusted family member or friend for assistance. This is a great option if you expect a one-time shortage and can catch up quickly.
- Contact your credit card company to explain your situation and see whether they can offer a modified payment plan or a temporary hardship program.
- Call a credit counseling service for coaching. However, please understand that while a credit counselor can help you develop better strategies for future borrowing and payments, they can’t forgive your debt.
Don’t Wait Until Credit Card Debt Becomes a Bigger Problem
There are a few rules of thumb to follow when using your credit card.
- Never spend more than you can repay by the time your credit card bill arrives.
- If you choose to carry a balance from month to month (this assumes you are making at least your minimum monthly payments), keep your credit card utilization at 30% or below.
- If you think you may have trouble making a payment, contact your credit card company before the due date. Ask whether payment assistance or hardship options may be available. Your credit card company will be far more likely to offer assistance when you are open and honest about your situation.
This all said, know that one missed payment doesn’t come with the same repercussions as nonrepayment over several months. And, when you miss a payment, you will be responsible for what comes later, including fees, damage to your credit history, and potential charge-offs, collections activity, and litigation.
Make responsible borrowing and payment behaviors your primary financial strategy.
Frequently Asked Questions
Does credit card debt go away after seven years?
Credit card debt doesn’t automatically go away after seven years. Seven years refers to how long negative information such as late payments and charge-offs can remain on your credit report. Whether a creditor or debt collector can sue you for an unpaid debt depends on the applicable statute of limitations.
Does a charge-off mean you no longer have to pay your credit card debt?
A charge-off doesn’t mean you no longer have to pay your credit card debt. The creditor has categorized the account as a loss, but you still need to pay the balance. And know that the creditor will very likely continue collection efforts or transfer or sell the debt to a collection company.
Can you rebuild your credit after missing credit card payments?
You can work to rebuild your credit after missing credit card payments. One of the best things you can do is to prioritize bringing those past-due accounts current while making all other payments that you are responsible for, on time. Know that accurate late payments can generally show up on your credit report for seven years, even after you catch up.
