What Happens if I Stop Paying My Credit Cards?

Can You Legally Stop Paying Your Credit Cards?

While it isn't illegal to stop paying your credit cards, it can have serious repercussions. That can include:

• Late fees
• Damage to your credit scores
• An interest rate increase (called a penalty APR)
• Restricted access to your line of credit
• Legal action

The consequences you face will depend largely on how far behind you are on payments.

Learn more: What to Do if You Miss a Payment

What Happens if Your Payment Is 30 Days Late?

Paying your credit card 30 days late can trigger fees. You can also expect a decrease in your credit scores.

Late Fees Are Applied

Your credit card issuer will likely charge a late fee if they don't receive your payment by the time it's due. In some cases, that could happen as soon as the next business day. The amount can vary, but the first late payment may be as much as $30—and up to $41 for subsequent late payments that occur within six billing cycles.

You might also incur a late fee if you paid on time but the amount was less than the minimum amount due.

The Late Payment Is Reported to Credit Bureaus

Most credit card companies report account activity to the three major credit bureaus (Experian, Equifax and TransUnion). While paying your bill on time and keeping your balance low can help you build your credit history and improve your credit scores, making late payments has the opposite effect. After 30 days, the lender will likely report the late payment to the credit bureaus.

Your Credit Scores Will Likely Take a Hit

Your payment history makes up 35% of your FICO^® Score^Θ, the score used by 90% of top lenders, so a late payment can do serious damage. For example, someone with excellent credit could see their scores decrease by roughly 60 to 80 points if their payment is at least 30 days late. That single late payment will also stay on your credit report for up to seven years.

What Happens if Your Payment Is 60 Days Late?

The consequences will be more severe after 60 days of nonpayment. Here's what you can expect.

A Penalty APR May Be Imposed

If you have a promotional interest rate, you may lose it after missing a payment. The card issuer might then impose a penalty APR on new purchases. That new rate could also apply to your existing balance. The penalty rate may be close to 40% in some cases, which could add up quickly if you have a large balance.

Your Card Issuer May Freeze Your Line of Credit

After a prolonged period of nonpayment, your credit card issuer might lock your account. That would prevent you from making new purchases or seeking a cash advance. This is a way for the creditor to avoid further losses if you fail to repay your balance.

What Happens if Your Payment Is 90 Days Late?

At this point, three billing cycles have come and gone without your card issuer receiving payment, which may cause them to take further action.

Your Credit Card Issuer May Close Your Account

Your creditor may choose to close your account altogether. This can have a negative effect on your credit scores because it can increase your credit utilization ratio and affect your credit age and credit mix.

What Happens if Your Payment Is 120 Days Late or More?

You can expect more severe consequences once the account is delinquent for four months or more. The credit card company will likely charge-off the account and send it to collections. A lawsuit is also possible.

Your Debt Might Be Charged-Off

This is when the credit card company decides that you will not repay what you owe and writes it off as a loss. The account will be marked as a charge-off on your credit report, and you'll still be responsible for paying off the balance. It will remain on your credit report for up to seven years from the first missed payment that led to the charge-off.

Your Account Could Go to Collections

After the account is charged off, the credit card company will likely sell the account to a third-party collection agency that will attempt to collect the debt from you. The charged-off balance will then be listed as $0, but the new collection account will appear on your credit report. In some cases, it might be possible to negotiate a lower settlement amount with the debt collector.

Legal Action Could Be Taken Against You

A creditor can also sue you to force the payment of a past-due balance, including unpaid fees and interest. If they're successful, a judgment may allow them to garnish your wages or freeze funds in your bank account. They might also seek a lien against your property.

State laws govern how long you can be sued for the debt, but it's generally around three to six years. But collectors can still attempt to recover payment, and making a payment might reset the statute of limitations.

What to Do if You're Struggling to Pay Your Credit Card

If you're having a hard time making your next payment, these steps might help you find a solution and protect your credit.

1. Contact Your Credit Card Issuer as Soon as Possible

Do your best to make contact before you miss a payment. Acting quickly may give you more options because the account is still in good standing. You'll probably have the most leverage if you have a positive payment history.

They may offer a credit card hardship program. These are designed to provide temporary relief to those who qualify. That could:

• Reduce your monthly payment
• Pause late payment fees
• Limit the impact on your credit
• Adjust your payment plan

If a hardship program isn't on the table, you can still ask about temporarily deferring your payments, modifying your amount due or waiving late fees until you get back on your feet.

2. Make at Least the Minimum Payment if You Can

If your budget is tight, still aim to make at least your minimum monthly payment. That can keep your account in good standing and prevent a 30-day delinquency. A common misconception is that making a partial payment that's less than the amount due will be enough—but that will probably still count as a missed payment. You can expect a late fee and for the creditor to report that missed payment to the credit bureaus.

3. Explore Debt Relief Options

If your credit card payment feels unmanageable, you might consider some form of debt relief. That might include one of the following:

• Debt consolidation loan: This can allow you to bundle multiple debts into one new balance and monthly payment. You might even secure a lower interest rate, but you'll likely need a FICO^® Score of at least 670 to qualify for favorable loan terms.
• Balance transfer card: This involves transferring your balance to a new credit card that has a 0% introductory rate. You can then pay off your debt interest-free if you eliminate the balance within that timeframe. But you can expect a balance transfer fee, which is typically 3% to 5% of the amount transferred.
• Debt management plan: Another option is to enroll in a debt management plan. A nonprofit credit counselor will negotiate with your creditors on your behalf and consolidate your debt into one monthly payment. However, this comes with fees and short-term credit damage.
• Debt settlement: A debt settlement company can negotiate a reduced repayment amount with your creditors, but this can be an expensive option that leads to long-term credit damage.
• Bankruptcy: This will stop collection efforts and can provide financial relief, but it should be a last-resort option. Bankruptcy will severely impact your credit, and it can take years to rebuild it.

4. Review Your Budget and Prioritize Payments

See if it's possible to create some breathing room in your budget. That could free up extra money to put toward your monthly credit card payment. Here are some ideas:

• Eliminate any subscriptions or memberships you don't use.
• Prioritize essential bills and curb discretionary spending.
• Negotiate your phone and internet packages.
• Shop for new car insurance.

From there, you can choose a debt repayment strategy that works for you. Just be sure to leave some room in your budget for non-essentials. Otherwise, your spending plan may feel too restrictive.

5. Monitor Your Credit and Start Rebuilding

It's wise to check your credit report regularly. If you spot indications of potential fraud or accounts being reported in error, you have the right to dispute it. You can get your credit report from Experian, TransUnion and Equifax through AnnualCreditReport.com. You can also access your credit report and FICO^® Score for free with Experian.

Here are the most important steps when rebuilding your credit:

• Pay your bills on time.
• Reduce your debt balances.
• Consider becoming an authorized user on someone else's account.
• Look into a secured credit card or credit-builder loan.

Frequently Asked Questions

The Bottom Line

Failing to repay your credit card balance can have serious consequences. It could impact your financial health and credit scores, making it harder to get approved for financing in the future. In extreme cases, the creditor may take legal action. If you're struggling to pay your credit card, contact your card issuer right away to see if they offer a hardship program. If not, nonprofit credit counseling may be your best option.