What Happens If I Stop Paying My Credit Cards?

by Raymond Spurgeon
what happens if i stop paying my credit cards

Panic and worry may be the first emotions you feel when you stop paying credit cards. Hardly does anyone wake up one day and decide to hold their credit card payment and wait it out.

Only 39% of Americans can pay for a $1,000 emergency out of pocket. Top causes of financial problems include job loss, medical expenses, and car repairs. The pandemic has also left more people without adequate emergency funds. Perhaps, your reason for missing payments is more innocent. You forgot to pay the credit card bill on time.

Today, we are examining ways to minimize the credit damage caused by missed payments. Learn how to avoid late fees. See the various stages of credit card defaults and why beating the system is rare and difficult.

1-29 days late? How to Avoid the Late Fee and Interest Accumulation

What happens if I stop paying my credit cards for one week? The consequences include:

1) Credit card placed on hold

The credit card company will change the account status from current to “on hold.” Adding purchases will not be possible.

2) Late fee

Check your email or user portal for a notification about the first penalty. The Credit Card Act restricts card companies from charging a first late fee of more than $28.

3) Withdrawal of the introductory rate

Have you been enjoying a low introductory rate with up to 0% interest? It only takes one late credit card payment to void this offer. After which, normal interest rates kick in.

Solution 1: How to avoid paying the late fee

Credit card issuers send out bill notifications. They may have sent an email or text and called. Don’t ignore any communications from the credit card issuer within the first week.

The grace period may still be in effect. If they have imposed the penalty, don’t give up. Contact the company representatives and offer a genuine reason for missing the credit card payment. They may waiver the late fee.

Solution 2: Consider joining the hardship program

Discover Card, American Express, Capital One, and other providers have hardship programs. The relief programs offer minimum payment assistance. American Express even keeps the card current and allows purchases on reduced limits.

Contact the company reps and inquire about financial relief. It’s becoming a popular option during the Covid-19 crisis.

Solution 3: Consider reducing the minimum payment

The card issuer only requires the minimum payment to keep the account current. It’s about 2% of the credit limit.

In the past, you may have paid more than the least payment and stopped paying once you couldn’t afford to.

Try all possible ways to raise the required minimum payment. Defaulting a credit card has more negative consequences. Afterward, ask for a reduced credit limit and lower minimum payments if possible.

Are You 30 Days Late? Creditors May Report the Missed Payment

“It’s been 30 days since I received the notice that my credit card bill was late? What can I expect?”

1) Negative credit entry

Credit card companies can only report a payment that’s late for 30 days or more. It can drop FICO scores by up to 50 points. Customers with excellent scores are the hardest hit.

If you made a large purchase before missing the payment, it might have increased the credit utilization rate. One of the effects of high credit card debt is reduced scores.

2) More expensive second late fee

For the second missed credit card payment, the credit card company may charge a penalty of $35 to $40.

3) Accrued interest

Credit card companies charge interest on owed balances. They apply the Daily Periodic Rate to the total outstanding account balance with all penalties. Let’s consider an example:

Last month’s account balance + Late fee $2,000 + $25 = $2,025
APR 15%
Interest after 30 days $25.46
Total amount due $2,050.46

(We have used the free interest calculator at The Calculator Site).

The interest for the first-late month will be $25.46. You continue paying interest on the late fees and outstanding balance. Debt collectors may charge interest and fees even for accounts in collections.

Looking for solutions when you’re 30 days late?

At this point, the financial crisis takes on a more permanent nature. So, it’s vital to find permanent solutions. Consider the following remedies:

Solution 1: Subscribe for a balance transfer card

The card allows customers to transfer their outstanding balances to one card. It’s a viable option if the new card has a cheaper interest rate or introductory offer. It also affords customers with multiple cards the chance to work with one company.

Note the presence of balance transfer fees. They range from 3 to 5% of the transferred amount and may make transferring debt more expensive. So, unless there are saving opportunities, disregard this option.

Solution 2: Speak to a credit counselor

Can’t meet debt obligations for the second month running? Start looking for credit counseling services. Many non-profits offer credit counseling services, but the services are not necessarily free.

A credit counselor first conducts a complete financial review. They may create an action plan and recommend debt management options. The counselor may reveal available support channels for day-to-day expenses or rent.

Solution 3: Consider a debt consolidation loan

It is a personal loan that may help pay off credit card debt. It can be secured or unsecured. Customers with less creditworthiness generally have to provide collateral.

Here is an example of debt consolidation: Assume that you have two credit cards with these terms:

Credit card 1 Credit card 2
APR 10% APR 20%
Minimum payment $100 Minimum payment $200
Balance $2,000 Balance $3,500

A debt consolidation loan of $6,000 at an APR of 12% and a term of 24 months may help clear the balances. The monthly repayments will only amount to $282.44. Generally, if you have good credit, the interest rate ranges from 6.99 – 19.99%, with repayment periods of up to 5 years.

Solution 4: Look for alternatives to increase income

As stated above, find permanent solutions to a long-lived debt crisis. Consider reducing fixed monthly expenses and explore ways to increase income.

60 Days to 179 Days Late – A More Lasting Impact

Following non-payment for 60 days, the credit card company may impose a penalty APR rate. For instance, if the yearly APR was 15%, the penalty rate may range from 27 to 30%. For subsequent months, the late monthly fee remains at $35 to $40.

The card issuer will continue reporting non-payments to the CRBs. A 60-day missed payment carries more weight than a 30-day missed payment. Lower credit scores make future loans more expensive. Bad credit can close doors in the job market and reduce rental opportunities.

When You’re Late by 180 Days or 6 Months

The card company will, at this point, consider the debt as a loss. They close the account and write it off as a charge-off in their accounting books.

Does it mean that I’m not responsible for the debt anymore?

No. The company hands over the problematic account to an agency or an in-house debt collection department. It’s up to the collection agency to pursue all legal channels to salvage the debt.

What can I expect?

1) Frequent annoying calls and letters

Collection agencies must use legally approved communication channels and not harass clients. They may contact your spouse but no one else.

2) Offers to settle the debt

Debt collectors don’t want to go to court because of the legal fees involved. The fees cut into their profits. “Debt settlement” means the company is willing to accept less than the amount owed. Settlements start at 25%.

Does a settled account appear on reports? Yes, as a negative entry, and it will remain on record for the next 7 years.

3) Sued for debt

You may receive a court summon when the collection agency decides to sue you in a civil court. By failing to appear, the court will rule against you. People don’t go to jail because of debt. However, failing to obey court summons may be considered contempt of court, which carries fines or possible jail time.

4) Wage garnishment and liens on personal property

A judgment against you may give the collection agency the right to take out money from your bank account. It may provide them with the power to seize or place liens on personal property.

Am I judgment proof?

Collection agencies don’t seek judgments in all cases. For instance, older seniors are often considered “judgment proof.” Creditors can’t garnish any protected income, including social security or disability payments.

What to Do if You’re Late on Credit Card Payments for over 180 days?

missed credit card payment

Consider cooperating with the collection agencies. But note if they are breaking the stipulations of the Fair Debt Collection Practices Act. You can countersue and receive up to $1,000 in statutory damages.

A credit counselor may also recommend filing for bankruptcy. Two popular options include Chapter 7 or Chapter 13 filings.

When a collection agency doesn’t want to settle, a debt settlement company may help. But note that they are not always successful in negotiating a favorable settlement.

What happens if I don’t pay my credit card for 5 years?

If the collection agency has not sued, the statute of limitation may have expired. Check the SOL laws for your state. The limit ranges from 3 to 6 years.

Bottom Line: Recovering from Credit Card Damage

Did your scores take a big hit following missed or late credit card payments? It’s time to start the credit repair and rebuilding process. First things first, order credit report copies from annualcreditreport.com. They now offer free reports every week.

The first step in credit repair involves checking the reports for errors. Most reports have at least one inaccurate item. The Fair Credit Reporting Act affords everyone the right to challenge and remove incomplete or unfair entries.

You may consider working with credit repair services. But it’s also possible to challenge errors without any help. For the latter option, learn about writing a 609 dispute letter.

If you decide to hire outside help, choose credible companies such as Creditrepair.com, The Credit Pros, or The Credit People.

Credit rebuilding requires long-term strategies to build positive credit history. One of the best ways is applying for credit rebuilding loans or secured credit cards and managing them wisely.

Raymond Spurgeon
Raymond Spurgeon

Founder and chief editor of rapidcreditfix.com. Have a master's degree in credit management. 7 years of experience in a credit repair company.