What Happens If You Don’t Pay Your Credit Card?

Credit card debt accumulates when balances are not fully repaid, leading to interest charges and fees. This debt is revolving credit, allowing continuous borrowing against an established limit as long as minimum payments are made. Failing to meet these payment obligations can initiate a series of financial and credit-related consequences.

Immediate Financial Repercussions

Missing a credit card payment results in immediate financial penalties. A late payment fee is assessed shortly after the due date. Carrying an unpaid balance into the next billing cycle triggers interest charges. This interest accrues daily on the outstanding balance.

Compounding interest means interest is charged on the original principal and previously accrued, unpaid interest, causing the debt to grow. Missing payments can also lead to a penalty APR, a higher interest rate than the standard APR. This penalty APR can be applied to existing balances and new purchases, making it more expensive to carry debt. If applied, it remains in effect until a certain number of consecutive on-time payments are made.

Impact on Your Credit Profile

Failure to pay credit card debt impacts a consumer’s credit profile, affecting their credit report and credit score. Credit card issuers report late payments to the three major credit bureaus—Experian, Equifax, and TransUnion—once the payment is 30 days past due. Even a single late payment can lower credit scores, with the impact becoming greater the longer the payment remains overdue.

Late payments, along with charged-off accounts and collections, remain on credit reports for up to seven years from the original delinquency date. This derogatory mark signals to potential lenders that an individual poses a higher credit risk. A damaged credit score can make it difficult to obtain new credit, secure favorable interest rates on loans, or qualify for mortgages. The negative impact can also extend to other areas, affecting opportunities for housing or employment, as some landlords and employers review credit histories.

Creditor Collection Efforts

When a credit card account becomes delinquent, the original issuer initiates collection efforts. These begin with reminder notices, phone calls, and letters. Creditors track delinquency in stages, commonly at 30, 60, 90, and 120 days past due. During these initial stages, the creditor may offer repayment options, such as hardship programs or modified payment plans, to help the cardholder catch up.

If payment is not received after an extended period, the credit card company will “charge off” the debt. A charge-off is an accounting declaration by the creditor that the amount owed is unlikely to be collected and is written off as a loss on their books. This action closes the account, preventing further use of the card. While a charge-off means the creditor has given up on collecting the debt, it does not absolve the cardholder of the responsibility to pay.

Debt Assignment and Legal Action

After a credit card debt is charged off, the original creditor sells the debt to a third-party debt collection agency or a debt buyer. These entities acquire the debt for a fraction of its face value and then pursue collection from the consumer. Debt collection agencies employ various tactics, including phone calls, letters, and emails, to recover the full amount owed. They are subject to federal regulations, such as the Fair Debt Collection Practices Act (FDCPA), which dictates permissible communication methods and times.

Should collection efforts fail, the original creditor or debt buyer may pursue legal action by filing a lawsuit against the debtor. If the court rules in favor of the creditor or debt buyer, a judgment is issued. This judgment allows the creditor to pursue collection.

Consequences of a judgment can include wage garnishment, where a portion of earnings is withheld and sent to the creditor, or bank account levies, which allow the creditor to seize funds. Property liens may also be placed on real estate, potentially forcing a sale to satisfy the debt. Collection methods and their limitations vary depending on state laws.

Bankruptcy Considerations

For individuals with unpaid credit card debt, bankruptcy can be a last resort for financial relief. Chapter 7 bankruptcy allows for the discharge of most unsecured debts, including credit card debt, without a repayment plan. This process may require the sale of non-exempt assets to repay creditors.

Chapter 13 bankruptcy involves creating a court-approved repayment plan, during which debtors make regular payments to a trustee who distributes funds to creditors. While it can help manage credit card debt through a structured plan, it does not immediately discharge the debt. Both types of bankruptcy have significant negative impacts on credit. A bankruptcy filing remains on a credit report for seven to ten years, lowering credit scores and making it difficult to obtain new credit or loans.