What Happens If I Can’t Pay My Credit Card Payment?

Missing a credit card payment can cause immediate worry. Understanding the potential outcomes and available paths for addressing unpaid debt can help. This article explains the sequence of events that unfold when credit card payments are missed.

Initial Consequences of Missed Payments

When a credit card payment is missed, repercussions occur within 30 days of the due date. A late fee, often ranging from $30 to $41, is usually applied. This fee is immediately added to the outstanding balance, increasing the total amount owed.

Beyond the late fee, a missed payment can trigger a penalty Annual Percentage Rate (APR). This higher interest rate, which can be as high as 29.99%, replaces the standard APR and applies to both existing balances and new purchases. This accelerates interest accrual, making debt reduction more challenging.

A 30-day late payment is reported to major credit bureaus, negatively impacting the cardholder’s credit score. A single 30-day late payment can cause a significant drop. Credit card issuers also begin communication efforts, sending automated calls, emails, and reminder letters to prompt payment.

Impact of Sustained Non-Payment

If payments continue to be missed beyond 30 days, negative consequences escalate. As delinquency progresses to 60, 90, 120, and 180 days, credit score damage becomes more severe and prolonged. Each consecutive missed payment further entrenches the negative mark, making it more difficult to obtain new credit or favorable terms.

During this period, the original creditor’s internal collection efforts intensify. Cardholders can expect more frequent contact through various channels, as the creditor attempts to recover the outstanding balance. These efforts aim to encourage payment before the account reaches a critical stage.

A “charge-off” occurs with sustained non-payment, typically after 120 to 180 days. A charge-off signifies the creditor has written off the debt as uncollectible for accounting purposes, deeming it a loss. However, it is important to understand that a charge-off does not erase the debt; the cardholder remains legally obligated to repay the amount owed.

Potential Legal Actions and Debt Collection

Once a credit card account is delinquent or charged off, the debt may be sold to a third-party debt collection agency or debt buyer. The cardholder will then receive communications from this new entity, which will pursue payment. Individuals should understand their rights under the Fair Debt Collection Practices Act (FDCPA) regarding communication and debt validation.

Creditors or debt collectors can pursue legal action to obtain a judgment for unpaid debt. This involves filing a lawsuit, and the cardholder will receive a summons requiring a response. Ignoring a lawsuit can result in a default judgment, making further collection actions easier.

If a judgment is obtained, the creditor or debt collector can initiate post-judgment actions to collect the debt. These can include wage garnishment, where a portion of the cardholder’s earnings is legally withheld and sent directly to the creditor until the debt is satisfied. Federal law limits the amount that can be garnished from wages.

Another action is a bank levy, which allows the creditor to freeze and seize funds directly from the cardholder’s bank accounts. A lien may also be placed on property, such as real estate, giving the creditor a legal claim against the asset. This requires a court judgment and is less common for credit card debt than for secured loans.

Paths to Address Unpaid Debt

For individuals facing unmanageable credit card debt, several strategies are available. Proactive communication with the original creditor is a beneficial first step. Creditors may offer hardship programs, payment plans, or deferred payment options to help manage the debt, especially if contacted early.

A Debt Management Plan (DMP) is a structured approach offered through non-profit credit counseling agencies. In a DMP, the agency works with creditors to potentially reduce interest rates and fees. It consolidates multiple credit card payments into one manageable monthly payment, which the agency distributes to creditors. This plan aims for full repayment of the debt within three to five years and can help stop collection calls.

Debt settlement involves negotiating with creditors to pay a lump sum less than the full amount owed. While this can result in paying less, it has a significant negative impact on credit scores. Payments may stop during negotiations, and the settled account is reported as “settled for less than owed.” There can also be tax implications, as the IRS may consider the forgiven amount as taxable income.

Bankruptcy, specifically Chapter 7 or Chapter 13, is a last resort due to its severe and long-lasting impact on credit. Chapter 7 bankruptcy is a liquidation process where certain unsecured debts, including most credit card debt, may be discharged, eliminating the legal obligation to repay. Eligibility for Chapter 7 depends on meeting specific income requirements, known as the “means test.” Chapter 13 bankruptcy involves a reorganization plan where the cardholder proposes a structured repayment plan over three to five years, repaying a portion of debts, with remaining unsecured debts discharged upon completion. Both types of bankruptcy provide an “automatic stay” that immediately halts most collection efforts and lawsuits upon filing.