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Key takeaways
- The consequences of not paying your credit card bills can be worse. Your score will drop, creditors may increase your interest rate, charge late fees, and send your bill to collections.
- Consumers do have legal rights and protections against debt collection. Know your rights and how to handle collection efforts.
- There are many ways to get out of debt. Debt repayment plans, negotiating with creditors, consolidation loans, and even bankruptcy can help you become debt-free.
Stop paying credit card debt right now and end the stressful cycle. The burden of unpaid credit card debt can be too much to bear. It can feel like no matter what you do, there’s no way to repay the debt.
Struggling to pay credit card debt is a problem millions of Americans face. It’s tempting to just stop paying. The problem is what happens then?
We’ll go over strategies on how to stop paying credit card debt and stop worrying about it so you can get on with your life.
Consequences of Not Paying Credit Card Bills
Ever considered not paying your credit card bill? If that’s the case, it’s important to understand what happens if you stop paying credit cards.
Impacts Credit Scores
Your credit score will take a hit as soon as you miss your first minimum credit card payment. Payment history is the biggest factor in how credit scores are calculated. When you miss a payment, it’s reported to the credit bureaus. Even one missed payment can lead to a noticeable drop in your score.
Late Fees and Increased Interest Rates
If you don’t make the minimum payment due, expect to be charged a late fee. The maximum late fee allowed by law for the first missed payment is $30. It then shoots up to $41 for subsequent missed payments. That adds up fast. If you miss five payments, you could pay $194. The exact amount is set by your credit card issuer.
In addition to late fees, your credit card issuer may increase your interest rate. Many companies apply penalty APRs (Annual Percentage Rates) for late payments, which can dramatically increase the amount of interest you owe on your outstanding balance.
Collection Efforts
Your account will be marked as delinquent and you’ll start receiving calls and letters from the creditor attempting to collect the debt. If the account remains unpaid for 180 days it likely be sold to a third party collection agency, which will then take over the collection efforts. Dealing with collection agencies can be stressful and can further harm your score.
Legal Actions
In extreme cases, collectors or creditors can sue you for the outstanding balance plus any fees and interest accrued. If the court rules in their favor, they may be granted a judgment to garnish your wages or levy your bank accounts.
What happens if you quit paying your credit cards? In short, you’ll be charged lots of fees, your score will plunge making it hard to get loans or cards in the future, and you may be taken to court. Missing payments are not the way to go.
Will Your Credit Score Be Impacted?
The decision to stop paying your credit cards can have significant, long-lasting effects on your credit score. Your payment history makes up 35% of your score. Missing a payment can have serious consequences.
When you stop making payments, your lender will report your account as delinquent to the credit bureaus. Your first missed payment can drop your score by 50 to 100 points. The higher the score, the bigger the drop. Each subsequent missed payment will further damage your score making it hard to secure favorable interest rates or even pass certain employment screenings in the future. Missed payments stay on your credit report for up to seven years.
The good news is, the further you get from a missed payment, the less effect it has on your score. So yes, the negative mark will not have the same impact on year six as it had when you first missed the payment.
How to Resolve Debt with Every Debt Collector
Resolving debt with collection agencies can be daunting but it’s a manageable task.
The key is to:
- Never admit to the debt
- Always verify the debt
- Get everything in writing
- Negotiate
Don’t Admit to the Debt: Do not confirm that the unpaid bill is yours. Listen to what the collector has to say but do not volunteer any information. If you admit it is yours and it’s passed the statute of limitations, you may legally have to pay it.
Verify the Debt: Request a debt validation letter from the collector. This letter should detail the amount owed, the original creditor’s name, contact information, when the last payment was made, and how you can dispute it. Verifying the debt ensures you’re not paying something you don’t owe.
Communicate in Writing: Keep a record of all communications with collection agencies. Written correspondence is crucial for documenting what has been discussed and agreed upon.
Negotiate a Settlement or Payment Plan: Be honest about what you can afford to pay. Many collectors are willing to settle for a lesser amount or agree to a payment plan that fits your budget. Don’t be afraid to negotiate to find a mutually agreeable solution.
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What Protections do I Have If I Stop Paying Credit Card Debt
For those who have stopped paying credit cards years ago or are considering this route, it’s important to understand not just the consequences but also the protections in place. You’ll be contacted by creditors or collection agencies seeking repayment. This can be stressful but you are not without defenses.
The Fair Debt Collection Practices Act (FDCPA) protects consumers from abusive, unfair, or deceptive debt collection practices. It limits how and when collectors can contact you and gives you the right to request that they stop contacting you.
By federal law, debt collectors cannot:
- Harass you
- Make false statements
- Use deceptive methods
- Threaten you. This includes legal action, jail time, property liens, or wage garnishment
- Use abusive language
- Misrepresent what you owe
- Contact you at odd hours
- Call you at work
If a collector does any of these things you can file a complaint with the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), or your state’s attorney general’s office. Be sure to provide details of the harassment and written evidence of all communications with the collector.
You can send a cease and desist letter to the collection agency asking them to stop contacting you, even if they haven’t violated the FDCPA. While this stops the calls and letters, it does not eliminate the debt, and the creditor can still take legal action.
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Additionally, states set statute limitations on debt, typically 3 to 6 years. Once the statute of limitations has passed, collectors can contact you about unpaid bills but they cannot sue you.
These protections can offer some relief but they do not absolve you of your obligations. Credit card companies can still take action if you stop paying.
Other Ways to Get Rid of Your Credit Card Debt
Tackling credit card debt requires making more than the minimum payments. Minimum payments will keep collectors away but cause the interest to grow. To eliminate your debt more efficiently consider these options.
Snowball and Avalanche Methods
It helps to break down massive debts into bite-sized pieces. Make a list of everything you owe and decide how you’re going to pay them back. Having a roadmap can ease anxiety and help you stick to a plan.
A popular strategy is the Snowball Method where you pay off the smallest amount first while making minimum payments on the rest. You see progress right away and can celebrate all your little wins.
If you want to save money, try the Avalanche Method and prioritize repaying debts with high interest rates.
Debt Management Plan
Debt management plans are offered by nonprofit credit counseling agencies. They consolidate your unpaid bills into a single monthly payment often at a reduced rate to make it affordable. You pay the agency, and they disperse your payments to creditors. Initial consultations are usually free.
The nonprofit counselor can also help you set a realistic budget, provide strategies to improve your finances, and give you financial resources.
Stop Paying and Negotiate
Stop paying if you can no longer afford to catch up. Then negotiate with the collection agency to pay a lump sum that is less than you owe. Always get the agreement in writing. A bill settled for a reduced amount will stay on your report for up to seven years but you’ll be done with it. If you don’t want to settle debts on your own, you can always work with a debt settlement company.
Get out of Debt
Struggling with over $10,000 in credit card debt?
Lower your monthly payments.
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Fix it in 12 to 48 months.
Call Creditors and Explain
Call your credit card company and explain what happened. Creditors are human too. They may be willing to waive late fees, offer a reduced interest rate, or let you join a hardship program. It never hurts to ask.
Try to call before you miss a payment. If you’ve already missed one, call right away. You’re more likely to secure favorable terms if you’re open and honest about your situation. Creditors want to recover their money, so they may make it easier for you to pay if it means they’ll get something rather than nothing.
Debt Consolidation
Take out a personal loan with a lower interest rate and use it to pay your bills. You’ll be paying less interest each month and only have one debt to pay. Debt consolidation is a great way to save money and simplify payments.
Consider Bankruptcy
If none of the above options work, consider bankruptcy as a last resort. Chapter 7 erases credit card debt but you have to sell your assets and it stays on your report for ten years. With Chapter 13 you must repay your debts using a court-ordered repayment plan. You get to keep your assets and it only stays on your report for seven years. Bankruptcy can offer a fresh start but it come with serious repercussions.
Frequently Asked Questions
Bottom Line
The temptation to stop paying credit card debt and stop worrying about it might seem appealing but the consequences are far-reaching. Stopping credit card payments affects your financial goals and creditworthiness for years to come.
Instead of ignoring your unpaid bills, explore alternative solutions such as negotiating with your credit card issuer, seeking counseling from a nonprofit agency, or restructuring your budget. Taking proactive steps toward addressing your debt is possible. A debt-free life is within your reach.
MoneyFor can help you become debt-free, secure a loan, or find the perfect job. See how we can help you improve your financial wellbeing.
