Credit cards can help you keep track of your money because they are convenient, safe, and give you benefits. However, not making bills on time can have big effects. If you know what will happen if you don’t pay your credit card bills, you can avoid costly mistakes and keep your finances in good shape.
What Happens When You Stop Making Credit Card Payments?
If you don’t pay your credit card bills, there are short-term and long-term effects that can hurt your credit score and ability to get credit in the future. Know this:
Extra fees
When you miss a credit card payment, you have to pay a lot of extra fees:
Interest Fees: If you don’t make a payment or only make a partial payment, interest will start to build up on the amount you still owe. Interest rates on credit cards can be very high, and you will have to pay interest on all new purchases from the date of the transaction onwards.
Late fees: If you miss a payment on your credit card bill, the company will usually charge you a late fee. These fees can add up to $40 to your bill, making things more expensive.
If you don’t make a payment for 60 days or more, you may have to pay a penalty APR, which can be as high as 29.99% changeable. If you don’t make your payments on time, this higher rate could last for six months or longer.
Having all of these fees and interest charges can make it harder and harder to handle your debt and get back on track.
What will happen to your credit score?
Paying your bills on time is the most important thing that determines your FICO score and has a big effect on your credit score. This is how not making payments can hurt your credit:
- Right away, payments that are 30 days late are usually reported to credit companies, which causes your credit score to go down. A single late payment can take away 100 points or more from your score.
- Damage that lasts: Your credit score will go down more and more as time goes on if you don’t make your payments. If the debt is sent to a collection agency, it will show up on your credit report as a different line item, which will hurt your score even more.
- Long-Term Effects: Accounts for late payments, defaults, and collections can stay on your credit record for up to seven years after the date of the original late payment. This effect can last for a long time and make it harder for you to get loans, credit, or even a job.
Loss of extra benefits and rewards
You can get cash back, points, or miles with a lot of credit cards. But if you don’t make your payments on time, you might not be able to get these benefits. How to do it:
- Limits on Redemption: In many reward programs, you need to keep your account in good standing before you can cash in your points or earn cash back. If you don’t make your payments on time, you might lose access to these benefits.
- Earned Rewards: If your rewards are tied to a different loyalty program, like hotel or flight points, they might stay the same. However, you might not be able to earn any more rewards until your account is back in good standing.
Lock and close your account
If you are late on your payments, your credit card company may take steps to make it harder for you to use your card:
- Card Lock: If you don’t make your payments on time, some card companies may lock your credit card to stop you from making any more purchases. This rule can be especially annoying if you use your card for everyday purchases.
- Account Closure: If you don’t make a payment on time for a few months, your credit card company may close your account. Closing an account can hurt your credit score even more because it can make your credit utilization rate go up, which is the ratio of your debt to your credit limit.
Possible legal actions
If your debt is sold to a collection service, you may have to go to court to get the money back:
- Lawsuits: Debt collectors can sue you to get the money back that you owe them. They could have your pay taken away, your bank account frozen, or your property seized if they win.
- Legal Representation: If you are sued, you should react quickly and think about hiring a lawyer to protect your rights.
What to Do If You Can’t Pay Your Credit Card Bills
If you’re having trouble making your credit card payments, here are some things you can do to lessen the bad effects and maybe even make your financial situation better:
Contact Your Card Issuer
Get in touch with your credit card company to talk about your money problems. Many issuers give you choices to help you make your payments, like forbearance or lower interest rates.
Consult a Credit Counselor
Credit counseling services that are not for business can help people with budgeting and managing their debt. Some of these services may also offer debt management plans with lower payments and interest rates.
Consider Debt Settlement
You might spend less if you negotiate a debt settlement, but it will hurt your credit score. You could get help with this from a good debt settlement company, but watch out for companies that charge a lot of money.
Explore Bankruptcy
As a last option, filing for bankruptcy may help people who are in too much debt. Talking to a bankruptcy lawyer can help you understand what will happen and decide if it’s the best choice for you.
In conclusion
Credit cards can help you handle your money well if you use them correctly. But not making payments can cause a chain reaction of bad things to happen, such as extra costs, damage to your credit score, and even court action. Understanding the effects and taking action can help you deal with money problems and keep your finances under control. If you are having trouble, don’t be afraid to ask for help and look into your choices for getting back on track financially.