Get ready for a slow descent into credit damage and financial distress.
99% of the people asking this question aren’t doing so because they just don’t feel like paying. It’s because they are facing some type of significant financial distress and want to know exactly what they’re in for. And knowing that can help reduce the stress of what you’ll face with nonpayment. That being said, the faster you head off the problem and find a solution, the less of what we list below that you have to deal with down the road. If nothing else, use the below as good motivation for why it’s in your best interest to get help quickly at the first sign of trouble.
The first missed payment
Every month, your creditor asks for a minimum payment that’s a small percentage of the total balance you owe by a certain date. If you don’t make that payment on that date, you get assessed late fees and some penalties that are outlined in your credit card agreement.
That can include penalty APR. This is a much higher interest rate than what you normally pay. So your debt costs you more every month. Penalty interest can be applied as long as the creditor wants until you make six consecutive payments on time. Then your normal rate gets restored.
If you pay the amount owed late, but less than 30 days late, you avoid credit damage. But after 30 days of no payment received from the date your payment was due, the creditor then reports the missed payment to the credit bureaus. This means the late payment now officially shows up on your credit report as a “negative remark” – and it will remain as a blemish on your credit report for the next seven years.
Countdown to collections
Missed payments are reported to the credit bureaus every 30 days. So it’s noted when your account is delinquent 30 days, 60 days, 90 days, and 120 days.
Keep in mind your debt will continue growing even if you’re not making charges because interest and penalties will get tacked on every month. The creditor will be calling you and trying to get you to work something out and make a payment. Your gut instinct may be to dodge them, but that puts you at risk of being considered a lost cause. When that happens, your creditor writes you off – literally.
The account gets moved to charge-off status. Your credit line is completely frozen and you won’t be able to make any charges on that account again. The creditor will send the debt to an internal collection department or they’ll sell it to a third-party collector.
Good news: Your rights are now protected by the FDCPA.
Bad news: Even legal debt collection is stressful and harrowing to go through.
Possible outcomes during debt collection
The best case scenario is your situation changes and you get the money together to either pay off the debt or generate enough money that you can make a successful settlement offer. If not, collectors can take any measures within the law to collect, including taking you to court.
Fact: Debt settlement carries a 7-year credit score penalty starting from the date it was settled.
This is the only way you can end up having your wages or tax refund garnished as a result of a credit card debt. What’s worse, the payments will usually be based on how much you owe instead of how much you have available to pay. As a result of this, people wind up in situations where they’re having half of each paycheck garnished for debt repayment. It can be an almost impossible situation to maintain.
Bankruptcy will always discharge credit card debt, so you can always file for bankruptcy. In rare cases, you can hide long enough (15 years) while debt buyers purchase, attempt to collect, and resell your debt that the statute of limitations runs out and the debt can no longer be collected. But in the meantime, that’s a lot of collection call hassle and potential embarrassment you can face for a debt in collections.