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What happens if you stop paying your credit cards?

Updated 6 min read

Credit cards offer a convenient and secure way to spend your money, and paying your monthly bill on time and in full allows you to enjoy all the benefits credit cards offer without the high interest costs.

But what happens if you stop paying your credit card bills? Not only will you incur additional costs, but you'll also face damage to your credit score, the loss of certain benefits, and potentially even account closure.

Here's what you need to know and how to avoid missing payments on your credit cards.

If you're struggling financially, the minimum payment feature on credit cards can make it easier to get by. But if you're to the point where you can't even afford your minimum payment, here are some potential consequences you may face if you don't pay your bills.

There are a few different ways you'll be penalized with additional costs for missing a payment on a credit card:

  • Interest: If you pay your credit card bill on time and in full every month, you'll avoid interest charges on your purchases. However, once you pay less than the full amount you owe, your card issuer will tack interest charges onto your unpaid balance. What's more, all future purchases will start accruing interest from the transaction date with no grace period until you pay your balance in full.

  • Late fee: Most credit cards charge a late fee if you miss your payment due date. Currently, credit card late fees can be as much as $40.

  • Penalty APR: If you miss a payment by 60 days or more, your credit card issuer may replace your purchase APR with a penalty APR, which is often up to 29.99% variable. This higher APR can remain in place for six months or longer, depending on when you get caught up on your payments.

The longer you let a credit card bill go unpaid, the more fees and interest will be charged to your account, making it more difficult to get back on track.

If you only miss a payment by a few days, you usually don't have to worry about damaging your credit score. But once a payment is 30 days late, your card issuer will likely report it to the credit bureaus.

Because your payment history is the most influential factor in your FICO credit score, even a single late payment mark on your credit reports can cause significant damage. In some cases, it could cause your score to drop by roughly 100 points or more.

Your score will take even more damage the longer your account remains unpaid. If you default on the debt and your card issuer sends it to a collection agency, the agency will report the collection account as a separate tradeline on your credit reports, causing even more damage.

It's also important to note that late payments, defaults, and collection accounts all remain on your credit reports for up to seven years from the original delinquency date.

Rewards credit cards offer value in the form of cash back, points, or miles. In many cases, though, your account must be in good standing for you to redeem your rewards.

Once you start missing payments, your credit card company could revoke that access until you get caught up.

That said, if your card earns points with a separate rewards program, such as an airline or hotel loyalty program, your card issuer can't revoke them once you've earned them.

In some cases, credit card companies may lock your credit card to prevent you from continuing to use it. So, if you plan to rely on your credit card even while you're not making payments, you may be disappointed.

At a certain point, your card issuer will likely close your account and sever its relationship with you. This will typically happen after you've missed payments for several months, stopping the issuer from losing more money.

Once your account is closed, your credit score may take another hit, as your credit utilization rate — your balance divided by your credit limit — could spike once you no longer have that available credit.

If your credit card company sells your debt to a collection agency, you can expect the debt collector to pursue all legal options to get you to pay, including filing a lawsuit against you.

If you lose, the court could garnish your wages, freeze your bank account, or place a lien on your property to ensure payment.

If you're sued over credit card debt, it's crucial that you respond quickly. Otherwise, the court may grant the collection agency a summary judgment, effectively giving it what it wants. Consider hiring an attorney to represent you and help you assert your consumer rights.

If your financial situation is dire and you can't afford to pay your credit cards, here are some steps you can take to minimize some of the consequences of missing payments:

  • Contact your card issuer: Contrary to what you may think, your credit card issuer has an interest in helping you during financial hardship because it increases the chances that you'll pay off what you owe. Before your due date, reach out to your credit card company and ask about relief options, such as forbearance or a reduced interest rate.

  • Consult a credit counselor: Nonprofit credit counseling agencies often offer free consultations to help you budget and tackle your debt. If you can't afford to make payments, they may also suggest a debt management plan, which could result in lower payments and interest rates.

  • Try to settle the debt: If you're already behind on payments, you may consider negotiating a debt settlement agreement in which you pay less than you owe. While debt settlement can hurt your credit score, it won't be as severe as bankruptcy. If you're feeling daunted by the process, you could enlist the help of a debt settlement company, but keep in mind that these firms can charge hefty fees.

  • Consider bankruptcy: If you've considered all other options and can't find a good solution, you may consider filing for bankruptcy to get relief. Before you do so, however, consult with a credit counselor or bankruptcy attorney to ensure that it's the right choice.

Whatever you do, don't ignore the problem because that will only make it worse.

Credit cards offer a chance to build credit and enjoy various benefits, and if you pay your balance in full each month, you can enjoy those features without incurring interest charges. But if you're concerned about not being able to pay your credit card bills, it's critical that you understand the potential ramifications and take steps to avoid them.

Read more: The best ways to pay off credit card debt