By LaToya Irby. Credit/Debt Management Expert
Welcome to About.com's Credit/Debt Management site, led by your guide, LaToya Irby. LaToya has been the credit and debt management guide since 2007. Read more
Everything goes downhill from the day you stop paying your credit card. You may feel an "ignorance is bliss" type of relief when you don't make your payments every month, but behind the scenes trouble will be brewing. The effects are small at first, but get worse as more time passes.
Fees and Interest Accumulate
Continue Reading Below
Each month your minimum payment will get larger as more late payment fees are added to your balance.
After 60 days of nonpayment, your credit card issuer is allowed to increase your APR to the default or penalty rate. which is the highest rate on your credit card balance. When the penalty rate kicks in, your finance charges will also increase. The result is that your outstanding balance and the payment you need to catch up gets larger every month you're late.
Even after you catch up, the penalty rate will remain in effect until you've made six consecutive payments.
After that, the rate must go down for your existing balance but can remain in effect for new purchases.
Collection Efforts Increase
Your credit card company's billing department will begin to contact you by phone, mail, or even text message or email to get you to make a credit card payments. Unfortunately, you can't stop calls from your credit card company the way you can with a debt collector. When you want to stop debt collection calls. the Fair Debt Collection Practices Act allows you to send a written cease and desist letter telling them you don't want to be contacted anymore.
Continue Reading Below
When you're only a few days or weeks behind on your payments, calls from your creditor aren't frequent. They're gentle reminders to get back current on your account. However, the further behind you get, the more frequently you'll be contacted. Not only that, the payment "reminders"
get harsher in tone and start mentioning serious actions like charge-off and default. After you're 90 days past due, your creditor may send you a settlement offer which would let you off the hook for the debt if you just pay a portion of your outstanding balance.
Credit Report and Credit Score Impact
Late payments are added to your credit report as you're 30, 60, 90, 120, and 180 days late. Unfortunately, these late payment notices will make your credit score decrease and could ruin your ability to get a credit card, loan, or even a job. Your insurance rate could also increase as a result of the credit card delinquencies.
Six months (180 days) after you stop making your credit card payments, your account will be charged-off. With a charge-off, the credit card company benefits (somewhat) not you. A charge-off allows the credit card company to write off your unpaid debt as a business loss. Meanwhile, you get a serious blemish on your credit report that will stay there for the next seven years alerting everyone that you once defaulted on a credit obligation.
Your Account May Go to a Collection Agency
Charge-off accounts are usually sent to a collection agency. From there, they get moved from one collection agency to another until they are paid or discharged in bankruptcy. Your original creditor or a third-party debt collector can sue you for the debt until it's paid or bankrupted. After a certain amount of time, the statute of limitations can protect you from a lawsuit judgment but the account must be completely inactive for several years and the burden of proof will be on you.
Credit Card Hardship Options
Try to salvage your account and your credit. If you can't afford your credit card payments, consider contacting a consumer credit counseling agency who can help you explore your options. Your credit card statement will include the number to a credit counseling agency .
Avoid the damage to your credit if you can, but make sure you realize the consequences of walking away from your credit card balance.