What Happens If You Don't Pay Your Credit Card: Consequences Explained

If you don't pay your credit card bill expect to pay late fees, receive increased interest rates, and incur damages to your credit score. If you continue to miss payments your card can be frozen, your debt could be sold to a collection agency, and the owner of your debt could sue you and have your salary garnished.

Consequences of Missing One or More Credit Card Payments

After one missed payment, you will be charged a late payment fee up to $27. If you miss subsequent payments within a six month period, you'll be charged up to $38. This fee is added to your balance and starts accumulating interest based on your APR. Some card issuers will waive late payment fees for your first violation or if you contact them and explain why you failed to make a payment. You will be charged interest on the purchases for the billing cycle, which is the case whenever you carry a balance—meaning you fail to pay the full amount owed.

Number of Missed Credit Card PaymentsConsequences
One to Two
  • Late fees
  • Loss of introductory APR
  • Penalty APR
  • Damage to credit score
Three
  • Late fees
  • Increased damage to credit score
  • Closed credit card account
More Than Three
  • Late fee
  • Substantial damage to credit score
  • Debt sold to collection agency
  • Lawsuit

On your first missed payment, your credit card issuers could revoke your introductory APR. If you have a card that has a 0% introductory APR period, missing a payment could cause your APR to rise to the post-introductory period rate. After two missed payments, your card issuer can charge you a penalty APR, typically between 27.99% and 29.99%. Card issuers cannot charge you an increased APR for future purchases without notifying you at least 45 days before the changes are to take place, except in the case where APR increases—that are outlined in your card agreement—are assessed due to missed payments. If you're being charged an increased penalty APR, the card issuer is required review your account every six months to determine if you're eligible for a lower interest rate. If you make at least your minimum payment for the six month period that your card issuer is reviewing, you can lower your APR back to the original rate.

After a missed payment, your credit card issuer can also report your account as delinquent—meaning you failed to make the minimum payment by your due date—to the credit bureaus which will damage your credit score. Some card issuers may not report your account delinquent after one missed payment. Delinquency records will stay on your credit report for seven years. Failing to make payments increases your chances of being reported by the card issuer.

Three Missed Payments

If do not make at least the minimum payment for three consecutive card due dates, then you may amass up to $108 in late fees, plus the interest that has accumulated on your balance over the course of that time. If the card issuer has not yet reported you to the credit bureaus, it will likely do so after three missed payments, which will damage your credit score and show up on your credit record for seven years.

You'll be contacted by the credit card issuer's internal collections agency. This agency might be willing to negotiate an alternative payment plan, which could lower your minimum payment amount. Your card issuer can choose to close your account, which would prohibit you from making new purchases with your card. This would affect your utilization rate, and may damage your credit score.

More than Three Missed Payments

Failing to pay your credit card issuer for more than three consecutive due dates—in addition to the late fees, damage to your credit score, and increased APR—can result in your credit card issuer charging off your account, which means your credit card issuer does not believe that you will pay back your debt or thinks that it will receive less money from you than it'll cost them to collect it, and sells it at a loss to a debt collector or will settle for less than you owe to get it off their books. While the card issuer may sell your debt for less than you owe, the new debt owner is still entitled to collect the full amount.

If your debt is sold to a collection agency, then your account will be reported as a collection account to the credit bureaus. This is damaging to your credit score and appears on your credit record for seven years. These agencies are known for being more aggressive than card issuers when contacting debtors for payments. Debt collectors—including credit card issuers—are regulated in terms of what they can do to collect on a debt. They are prohibited from harassing, threatening, and making false statements to try and get you to pay them. More information about what debt collectors can and cannot do can be found here.

If your issuer or debt collector cancels more than $600 of your debt, you'll have to pay taxes on the amount forgiven. In this situation, the IRS requires that debt owners file a 1099-C form stating that the forgiven debt is reported as taxable income. For example, if you have $10,000 in credit card debt and your card issuer decides to take $8,000 and forgive the rest, then they will file a 1099-C. You'll then receive a notice that you have to report the $2,000 in settled debt as income, which you must then pay taxes on.

Your credit card issuer or a collection agency can decide to file a lawsuit—called a judgement— against you in order to get collect on your debt. When a judgement is filed it's reported to the credit bureaus, and will damage your credit score. If the judgement is vacated—meaning that it is nullified in the eyes of the law—any record of the judgement is removed from your credit report and there will be no adverse effects to your credit.

If the court demands that you pay a debt then you could have your wages garnished or your bank accounts frozen. In addition, you can be charged for the legal fees accrued by the card issuer for any actions that it had to take to collect your debt. If you're ruled against in a judgement, but still have no means to pay back your credit card debt then you should consider filing for bankruptcy—legally stating that you cannot pay back your debtors.

There are two types of bankruptcy that most individuals can file for—Chapter 7 and Chapter 13. Chapter 7 bankruptcy requires a third party trustee to liquidate your non-exempt assets to pay your debt owners. The exemptions are decided on a state-by-state basis, but you could lose your house, your car, and any valuable personal possessions. Chapter 13 bankruptcy requires you develop a plan to repay your debts within a reasonable timeline—3-5 years—and then make payments to a third party trustee who will pay your debt owners. This is only available to individuals who can prove they have a regular income and is preferable to Chapter 7 bankruptcy in most cases, as it allows the person filing for bankruptcy to protect their property. After a person successfully files for bankruptcy, the debt owners are forced to stop most collection actions. Bankruptcy appears on your credit score for seven years if you file Chapter 7 bankruptcy, and ten years if you file Chapter 13 bankruptcy.

What if You Never Pay Your Credit Card Debt?

If you never pay off your credit card debt, then your debt owners will use whatever legal means they have to collect from you. This usually means taking you to court in order to force you to pay.

What Happens to Your Credit Card Debt When You Die?

If a person with credit card debt dies, their credit card issuer is notified and will stop assessing penalties—such as late fees. Often the debt will transfer to the next responsible party—which could be any co-owners of the account, a spouse, or the deceased person's estate. Whether or not debt can be transferred to a spouse depends on whether or not the deceased person lives in a community property state–including Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin and Alaska.

If the debt is transferred to the estate, then it's the responsibility of the executor of the estate to liquidate any assets necessary to pay of the credit card debt. If the estate is worth less than what is owed, then the debt owners usually have no recourse for collecting on the debt.

What Happens to Your Credit Card Debt When You Move Out of the Country?

Debt collectors are still entitled to seek payment for your debt even if you leave the country. This means that they can file a lawsuit against you, and can go after any assets that you leave behind. The suit also may be able reach you abroad, depending on the country that you move to. However, it's likely that your debtors will not try to pursue collecting your debt if the cost of doing so would exceed the amount you owe or the amount they expect to get back.

If you leave the country, your credit card history will not follow you. This means that you'll continue to accrue penalties and damages to your U.S. credit history, but you'll have no credit history with the credit bureaus in your new country. The downside is that you will have to build credit from scratch.

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