Deciding to stop paying on your credit card debt sets a whole chain of unpleasant events in motion. Over time, the damage that results will haunt the consumer for a number of years. Before entertaining the notion of letting the payments on one or more cards slide, consider what the outcome could be.
Penalties and Higher Rates
The immediate effect of not paying on credit card debt is that the provider will apply late fees and other charges. Along with that, the competitive interest rate that motivated the consumer to open the account will disappear forever. As part of the penalty, the provider is likely to suspend charging privileges until the debtor makes at least the minimum payment due on the account.
Negative Comments on Credit Report
Most credit card providers report to at least two of the three major credit reporting agencies, such as Experian, Equifax, and TransUnion. When a consumer chooses to stop paying on current open balances, those agencies are notified, usually within 60 days, but sometimes within 30 days of the late notice. The result is that the debtor’s credit score begins to decrease within weeks of failing to keep up those credit card payments because there will be a negative mark on your credit report.
Closing Accounts to Further Purchases
If no payment activity is initiated, credit card providers are highly likely to close those accounts to any further purchases. The credit limit has no meaning at that point because you won’t be able to use that card. All that matters is the outstanding balance. Finance charges will continue to accrue unless the balance is paid in full.
Turned Over for Collections
While providers will make reasonable efforts to communicate with debtors and make some sort of payment arrangements, failure to respond will result in the account being closed and turned over to a collection agency. The collection agency will begin to make contact by mail, email, and by phone. This includes attempting to reach the debtor at work. Those communications will continue until the debt is resolved one way or another.
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Legal Action
In some cases, the provider or the collection agency will take legal action in an attempt to recover the debt. In this scenario, the debtor will end up having to pay for legal representation, the cost of the judgment, and any court costs that apply. This is a really bad thing to have happen.
Ruined Credit
Once a credit score is ruined by failure to pay and closed accounts that still have balances, it takes years to recover. Eventually, those negative marks do disappear (it could take 7-10 years), but in the meantime the debtor will find it hard to obtain credit or loans in any form. The best approach is to honor debts, communicate with card providers when a problem arises, and work out some sort of solution that everyone can live with.
If you have problems paying back your credit card debt, give us a call today. It’s free and confidential. We might be able to work out a plan that lowers your monthly payments and interest rates, to help you make one monthly payment to your creditors and stay in their good graces.
