Using a credit card comes with the responsibility of paying back what you charge. When you sign up, you agree to the terms of the card which include making regular minimum payments on the balance you owe.
But what happens if you can’t pay your credit card bill?
It’s not an uncommon occurrence. Some people may miss a payment because they forgot while others may have an emergency that uses up all their cash. And of course, some cardholders simply spend more than they can afford.
If you find yourself in the position of being unable to pay your credit card bill, here’s what you can expect.
Paying your credit card bill a few days late
Let’s say you forgot to pay your bill this month. It simply slipped your mind in the midst of carting kids to sports practice or preparing for a big work project.
In that case, you’re likely to get a reminder call or email from your card issuer a few days after the due date. You will also likely be assessed a late payment fee. These fees vary by issuer but can be as high as $39.
Some card issuers will waive the fee if it is the first time you are late. If you have a good payment record, it may be worthwhile to contact the company about this option.
Assuming you pay your bill promptly at this point, you shouldn’t have to worry about the late payment showing up on your credit report. A payment that is only a few days late isn’t typically reported to credit bureaus.
However, if you have a promotional APR, such as a 0% introductory offer, you could lose that if your payment is late.
What happens if don’t pay your credit card bill for months?
Once you reach the 30-day mark, your card issuer will report the late payment to the credit reporting agencies. Since timely payments are a significant factor in calculating most credit scores, this could cause your score to drop. What’s more, if lenders pull your credit report and see late payments, they may think twice about approving a loan application, regardless of your score.
At 60 days late, your credit card issuer can institute a penalty APR. That means you could end up paying as much as 30% interest on the balance you owe.
If you do get hit with a penalty APR, all is not lost. If you make on-time payments for six months, your card issuer is required, by law, to revert your outstanding balance to the original APR. However, they can still assess the penalty APR on future purchases.
Once your credit card bill is 30-60 days late, you can expect an increase in communication from your credit card company. They may begin calling regularly to check on the status of your payment. You may also hear from a debt collection agency.
What if you never pay your credit card bill?
Hopefully you aren’t intending to go on a spending spree and then walk away from the balance. But assuming you have something catastrophic happen in your life and you don’t pay your credit card bill for 180 days – 6 months – the card issuer will charge off your account. This means they permanently close your account and write off the balance as a loss.
That doesn’t mean you get to walk away from your debt though. You still owe the money, and you can expect debt collection calls and correspondence to continue.
Credit card companies can also file lawsuits to collect the money they are owed. If the court finds in their favor, your income could be garnished. In other words, your employer could be required to take money out of your paycheck and send it to the company to pay off your debt. Court orders can also result in money being pulled from your bank account and your tax refunds being intercepted.
Depending on the applicable state’s laws, credit card companies have 3-10 years to collect on a debt before the statute of limitations runs out. At that point, they can no longer try to collect the money from you, but that’s not the end of the effects of the late payments. They will remain on your credit report for seven years where they could negatively affect your insurance premiums, ability to get a future loan or even your employment prospects.
Actions to take if your credit card payment will be late
Being proactive can go a long way toward minimizing the negative effects of a late payment. Here are some strategies to try if you think your payment will be late:
- Ask for a new due date: Many credit card companies will adjust your payment due date upon request. If you find you are always running short of cash when the due date rolls around, ask to switch it to a day that better corresponds to your payday.
- Keep in contact: It’s always better to reach out to your card issuer about a late payment rather than waiting for them to call you. Let them know your situation and that you intend to pay as soon as you can. Being proactive can also minimize the number of collection calls you receive.
- Pay what you can: Even if you can’t make your minimum payments, send what you can. It won’t prevent your account from going into default, but anything you pay can help reduce your overall interest charges.
- Consolidate debt: Once you get hit with a penalty APR, you might be better off consolidating debt using a loan. Debt consolidation loans can reduce your interest rate and provide a predictable repayment schedule. Just be sure you can actually make the monthly payments before committing to the loan. If your credit score is low, this may not be an option though.
Late credit card payments can result in fees, high interest rates and sleepless nights. If you find yourself falling behind, put the brakes on any future spending while you get yourself financially back on track.