Is your credit card debt starting to pile up?

Do you feel like you’re sinking in financial quicksand? It may be tempting to put off or altogether ignore your mounting debt, but the consequences will eventually become even more of a burden. So, what will happen if you decide to just not pay off your credit card debt? This article will explore the domino effect of not paying credit card debt, the timeline of events that typically unfold, and potential options for those struggling with credit card payments.

Credit card debt (in a nutshell)

Before diving into the consequences of non-payment, it’s essential to understand the nature of credit card debt:

• Unsecured debt: Credit card debt is typically unsecured, meaning it’s not backed by collateral.
• High interest rates: Credit cards often carry higher interest rates compared to other forms of debt.
• Minimum payments: Card issuers require at least a minimum payment each month, usually a small percentage of the total balance.

The timeline of non-payment

When you stop paying your credit card debt, a series of events unfolds:

• Missing the First Payment (30 Days Late)
  • Late fee: Your card issuer will likely charge a late fee, typically $25-$35.
  • Interest continues: Interest charges continue to accrue on your balance.
  • Credit score impact: Your credit score may drop, but the impact is usually minor if you catch up quickly.
  • Communication: The card issuer will attempt to contact you about the missed payment.

• 60 Days Late
  • Additional late fees: Another late fee will be charged.
  • Higher interest rate: Your APR may increase to a penalty APR, often around 29.99%.
  • Credit score impact: Your credit score will likely see a more significant drop.
  • Reduced credit limit: The card issuer may lower your credit limit.

• 90 Days Late
  • Account freeze: Your account may be frozen, preventing further use of the card.
  • Continued fees and interest: Late fees and interest charges continue to accumulate.
  • Increased collection efforts: You’ll receive more frequent calls and letters from the creditor.
  • Credit score impact: Your credit score will continue to decline, potentially by 100 points or more.

• 120-180 Days Late
  • Charge-off: The creditor may “charge off” the debt, considering it a loss.
  • Debt sold to collection agency: The debt may be sold to a third-party collection agency.
  • Credit report: The account will be reported as a charge-off on your credit report.
  • Severe credit score impact: Your credit score will suffer significant damage.

• Beyond 180 Days
  • Continued collection efforts: Collection agencies will continue attempts to collect the debt.
  • Potential legal action: The creditor or collection agency may sue you for the debt.
  • Long-term credit impact: The negative mark can remain on your credit report for up to 7 years.

Detailed consequences of non-payment

1. Financial consequences

• Mounting debt: With continued interest and fees, your debt can grow significantly.
• Difficulty obtaining new credit: Future loan applications may be denied or offered at very high interest rates.
• Higher insurance premiums: Some insurance companies use credit scores to determine premiums
• Difficulty renting: Landlords often check credit reports and may deny applications with significant unpaid debt.

2. Legal consequences

• Lawsuits: Creditors or collection agencies may sue you for the unpaid debt.
• Wage garnishment: If a judgment is obtained against you, your wages may be garnished.
• Liens: In some cases, liens may be placed on your property.
• Bankruptcy: While not a direct consequence, some individuals may need to consider bankruptcy as a last resort.

3. Credit score impact

• Significant drop: Your credit score can drop by 100 points or more.
• Long-term damage: Negative marks from unpaid credit card debt can remain on your credit report for up to 7 years.
• Multiple accounts affected: If you have multiple unpaid credit cards, the impact is compounded.