What Happens If I Stop Paying My Credit Cards?
Being unemployed and behind on your credit card bills is stressful. If you stop paying your credit cards, you will receive constant calls from debt collectors and, eventually, litigation letters from attorneys. By the time you stop paying off your credit cards, your credit score will be ruined, and your savings depleted. If you do get a job eventually, your initial salary will be heavily garnished with hefty court costs as you attempt to have an extended period to pay off the credit card arrears in flexible installments.
But don’t despair. You can find a debt counselor through the National Foundation for Credit Counseling. They’ll help by negotiating with your credit card companies and advocate for manageable payments or advise you to file for bankruptcy through a lawyer. The latter is a terrible idea, but it shields you from countless lawsuits so that you can focus on rebuilding your cash flow once you find a job.
In the meantime, here’s what to expect if you stop paying your credit cards.
Late Fees
The first and immediate action your bank will take is to slap you with a late fee for failing to make payment after the allowed grace period.
Here’s a typical scenario of what to expect:
- One day late: The credit charges a late fee ($0 – $29).Cease all promotional activities on your account.
- Thirty days late: Expect more late fees and your bank to report you to the credit bureaus.
- Sixty days late: A penalty APR on your current balance.
- 90 – 150 days late: Expect more hefty interest rates on defaulted payments.
- One hundred eighty days late: The card issuer closes your account, charges off your account, and sends it to a debt collection agency and sues you for unpaid debts.
- The creditor may sue you for an outstanding amount overdue and get a court order that permits them to take money from your bank account or acquire a lien against your assets.
Your Credit Score Takes a Dive
Card issuers have little patience with defaulters. By the time your account accrues arrears, usually, after 30 days, expect them to report your unpaid credit balance to the credit bureaus; TransUnion, Experian, and Equifax.
Your payment history gives you a good credit score, and late payment can lower your scores and ruin your creditworthiness. You may lose numerous points collected over the years will vary depending on your general credit profile.
The more points you have, the more you lose from late payments or nonpayments.
The card issuer will continue to report your late payments if you don’t make any payments to reduce the debt. Your credit report will reflect the late payments up to seven years and continue to impact your credit score for the nonpayment duration negatively.
Watch out for a Penalty APR
If you still do not pay your credit cards within 60 days, the card issuer can slap you with a new, higher, higher penalty APR according to your current balance as well as future transactions. If you do manage to pay off the debt, you may get back to your regular APR after proving your credit worth with six consecutive timely payments for the least amount due.
Debt Collection Agency
If you still haven’t paid your credit card debt by day 180, the credit card issuer is almost certain that no payment will come around. The financial institution will cover the liability from its earnings but will not forget your debt. Your account will be sent to debt collectors who will continue the struggle to recover the accrued monies. By this point, the interest charges and late fees have significantly escalated and brought the total balance to an obnoxiously higher amount than the original unpaid balance. This is bad for your credit score, and you must pay it off to redeem your financial credibility.
It takes seven years to clear your name from the credit reference bureaus once your name is registered due to the nonpayment of your credit cards.
Legal Suit against You
A creditor or debt collector can take you to court to force you to pay your overdue credit card debt. If the court favors them, it may allow the creditor to:
- Pull money from your bank account
- Force you to pay directly from your paycheck
- Obtain a lien against your property
If your creditor serves you with a lawsuit, don’t ignore the order because the judge may award your creditor with a default judgment forcing you to pay despite your financial difficulties.
Missed a Payment? Here’s what you should do
If you have fallen behind on a payment or two, contact the credit card center to set you up for a flexible way to make manageable payments. If you’re struggling with payment of multiple credit cards, it is wise to consider contacting a nonprofit credit counseling agency for advice on the best possible way to handle your bloated debt. An assigned counselor will guide you with a debt management plan and possibly negotiate with your credit card issuers to lower your monthly payments and waive accruing fees. If your creditors agree, you will make a monthly payment to the counseling agency, and they will distribute the payments to the credit card companies.
What Happens If you relocate overseas?
If you owe money to any credit card company, the assigned debt collectors can go all out and either sue you or go after your assets even if you leave the country. However, it’s unlikely that your debtors will pursue your debt beyond the boarders if the cost of recovering exceeds the amount you owe.
If you leave the country, you may start again wherever you go, because your credit card history does not reflect beyond the borders. This doesn’t mean that you’re out of the woods, because you’re not. Your debt will continue to accrue interest and penalties – damaging your credit history even further. Going forward, you’ll have to build your credit from scratch in your new country.
Final Word
If you stop paying your credit card debts, you’re headed for the long lonely road of financial misery because your credit history plunges, and you will be forced to pay, whether you like it or not. For as long as you’re alive, well, unless you file for bankruptcy or you’re taken ill permanently. Whichever the case, credit card debt is bad. It is inheritable, and it stays with you for seven long years if left unpaid.
To avoid hefty fees and penalties with defaulted payments, make minimum installments every month to keep your credit scores on the positive and prevent penalty APRs.