What Happens When You Stop Paying the Credit Card Company?
If you are drowning in credit card debt, the simplest solution may seem to be non-payment. Learn what happens when you stop paying the credit card company before you take this drastic step. In some cases, filing for bankruptcy makes more sense than failing to pay the accounts; consult an attorney or a financial advisor to determine the right path for your financial future.
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Fees
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Credit card companies can charge late fees that will increase your outstanding balance if you stop paying on the account. Interest will continue to accrue, which further increases the balance that you owe. Fees will vary based on the creditor's policies.
Collection
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When you stop paying the credit card company, they have the option to turn your account over to a collection agency or to sell the debt to a debt buyer, another form of a collection agency. Collectors can contact you via regular mail, e-mail, fax or phone. They can also contact family members and neighbors to try and obtain your work and contact information. Original creditors, debt collectors and debt buyers can file a lawsuit against you for the balance due on the credit card account, plus legal fees.
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Judgments
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If a creditor or collector wins a lawsuit against you after you stop paying your credit card bill, the court awards a judgment. Judgments are liens against any real property that you own. They will also remain on your credit report for seven years.
Credit
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Your credit score will take a hit when you stop paying the credit card company. Creditors report payment information to three reporting agencies, who compile the information into a three digit score. Not paying your credit card bill affects the payment history aspect of the calculation. Payment history is the single largest component of a credit score calculation, weighing in at 35 percent on all models. After a time, the outstanding portion which accounts for 30 percent of your score will be affected due to added fees charged by the creditor. When the creditor turns the account over to a collection agency, the account may be listed as a charge-off on your credit report, which will impact your score for seven years.
Alternatives
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Before you stop paying the credit card company, contact them to try and work out a modified payment plan. They may be more amenable to reducing the interest and accepting a reduced payment if you explain your financial difficulties. You can also work with a professional debt counselor to consolidate your credit card debt, which may be easier than dealing with the consequences of stopping the payments altogether. Make sure to research any debt consolidation company fully to determine their legitimacy.
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