Credit Cards

What Happens If I Don't Pay My Credit Card Bills?

Get ready for a future filled with late fees and lawyers.

Life's filled with a lot of terrible, soul-sucking tasks, such as root canals, regular exercise and paying credit card bills. When you find yourself stuck in the middle of performing a particularly groan-inducing duty, it's tempting to think "Hey, I'm an adult—I can eat ice cream and hot wings for dinner and go to bed as late as I want—why don't I just not do this awful thing?" At times like these, you need to think through the consequences of shirking your responsibilities—if you don't get that root canal, you can have your jaw rot off, if you don't exercise you endanger your health, and if you don't pay your credit card bills, you're in for a world of financial pain.

Warning Shots

Let's say you treat your credit card bills with the same care you reserve for emails from Nigerian princes asking for loans or companies promising miracle cures for male-pattern baldness—by sending them straight to the spam folder. Missing one payment cycle will typically cause the credit card issuer to yank any cushy introductory APR rate you've been enjoying and, depending on their mood, you could also get hit with a penalty APR on the current balance you're carrying. This APR can climb as high as 29.9999% and theoretically could apply to all future balances carried on that card, even if you come to your senses and start making your payments on time. You'll also get hit with some late fees to which this penalty APR will apply—up to $27 for one missed payment, with another fee of up to $38 if you miss another payment within six months of the first one.

Often this damage can be mitigated if you contact the card issuer and explain this was a one-time slip-up on your part—but that's not the point of this intellectual exercise on what would happen if you willfully ignored your credit obligations. Assuming you go radio silent, the credit card issuer will likely report your delinquency to a credit reporting agency, which will deliver a body blow to your all-important credit score. With both FICO and VantageScore, the two most accepted credit scoring models, payment history is weighed the heaviest in determining your credit score, so expect your three-digit number to take a plunge, should you get reported as someone who welches on their credit card bills.

Dealing Damage

After about three or so missed payments without any attempt to explain your actions—or lack thereof—to the credit card issuer, your status gets downgraded from "lazy and forgetful" to "hostile target." Your credit score will continue to take a shellacking as reports of your missed payments keep rolling in, and now people at the issuer's internal collections agency likely know your name. After three missed payments they've most likely approached you with alternative payment plans in an effort to recoup at least some of the money they lent you via credit card.

When you either stonewall the internal collections team or give them a hearty "Bye, Felicia," the credit card issuer will bring out the big guns. If they feel the amount of debt is worth the trouble of collecting, the credit card issuer will put their lawyers on you and take you to court over the debt. Because this isn't the 19th century and we're no longer concerned with powdered wigs or the whale oil market, you don't have to worry about landing in debtor's prison. However a court of law can garnish your wages and freeze your bank accounts until you've paid back your debt. You can still declare personal bankruptcy, but if you file Chapter 7, a third party will liquidate your assets, which can include your house and car.

After 180 days of delinquency, the credit card issuer will discharge the debt you owe. That means they write you off as a loss, selling your debt to an external collections agency that likely specializes in how to make things as unpleasant for you as possible—within legal reason—until you repay them. This collection agency can also bring you to court over the debt, where you'll face all the same bad options you would if you landed in court with the credit card issuer itself. Sending the debt to a third-party collections agency counts as another additional black mark on your credit score, which may be the least of your worries now but will stick around on your report for seven years.

No Way Out?

Credit card debt poses a real problem for millions of Americans, dragging down dreams and placing a big burden on financial freedom. It's not easy to climb out of credit card debt, but getting help—whether from consolidating your debt or consulting with a professional to help come up with a debt management plan—is preferable to making like an ostrich and burying your head in the sand.

The credit card issuers may forgive a few late payments, but they never forget and will make you pay—one way or another.

James Ellis

James Ellis is a Staff Writer for ValuePenguin, covering credit, banking, travel and other personal finance topics. He previously wrote for Newsweek, Men's Health, and other nationally-published magazines.