Month after month, you receive your credit card bill. It’s stressful because you can’t pay it off… and you start to wonder, “What would happen if I just stop sending in payments?”
If you’ve ever been in this situation, read on!
The short answer is that a lot of negative things will happen. And the consequences will impact your financial situation for many years.
Consequence #1: Finance Charges
If you’ve ever missed a payment or paid it late, you know that your credit card company is quick to charge a late fee – especially if this isn’t your first time. The late fee is a one-time charge incurred each time you blow past your due date.
Consequence #2: Penalty APR
In addition to the one-time late fee, many lenders will increase your annual percentage rate once your account is 60 days past due (typically after you’ve missed two payments), leading to more interest accumulating on your revolving balance at a higher rate.
Consequence #3: Long-Term Penalty APR
The worst part about facing a penalty APR is that it isn’t a one-time penalty – you’ll continue to be assessed this higher APR even after you pay your bill. This higher rate usually stays in effect until you’ve made six consecutive payments on time. After that point, it legally must go back down for your existing balance, but the penalty rate can still apply to new purchases.
Consequence #4: Credit Score Impact
Late payments can hurt your credit scores. The further behind you fall on your payments, the greater the negative impact on your credit score – an account that is 60, 90, or 120 days past due is worse for your credit than a 30-day late payment.
Consequence #5: Poor Credit
Credit card lenders report late (or skipped) payments to the credit bureaus. These late payment reports will substantially lower your credit score, which can impede your ability to get a new credit card or future loan. You could even see an increase in your insurance rate as a result of this credit card negligence.
Consequence #6: Repayment “Reminders” Increase
Your lender wants its money – if you stop paying your credit card bills, expect the billing department to begin contacting you regularly (by phone, mail, text, email, or all four methods!) to remind you of your credit card obligations. If you’re only a week or so behind on your payments, these “gentle reminders” aren’t very common. As you lag further and further behind, though, these payment reminders will become more frequent – and more serious. You’ll notice a harsher tone may even start hearing about dramatic actions like “default” and “charge-off.”
Consequence #7: Collections
A “charge-off” means your lender has written off the account as a loss and has closed it to future charges. You are still legally obligated to pay the debt, though, and your lender can sue you for the amount you owe until it’s paid (or settled in bankruptcy). It may be sold to a debt buyer or transferred to a collection agency – and those institutions are usually ruthless in hounding you for payment.
If you’ve gotten in over your head with credit card debt, it can be tempting to just stop paying. But ignoring the debt won’t make it go away – that will only make it worse. Fortunately, there are steps you can take to ease the problem. The first thing to do is contact your lender. Explain your situation, and work out a plan to start paying down your debt. If it all feels like too much, don’t hesitate to reach out to DebtGuru.com. One of our friendly counselors will work with you to find a solution that works for you.
