In Focus – SCCCU Blog

So, you’ve run up a hefty balance on your credit card, and you have no clue how you're going to pay it back. Maybe missing just one payment doesn’t seem like a big deal. After all, how much could one delinquency hurt?

It turns out even one late payment is a big deal: It sets into motion a chain of events that can negatively impact your financial situation — and your life — for years to come. For example, not only can too much credit card debt cause a negative drop in your credit score, it may result in emotional stress that can take a toll on your physical health. A low credit score can hinder your ability to buy a home, purchase a car, or save for retirement. Additionally, in the event of a job loss, having an expensive monthly credit card bill to pay can be disastrous — you might find yourself forced to choose between paying your credit card or paying your rent, and no one wants to be trapped in a never-ending cycle of debt.

Here’s a look at what really happens when you don’t pay your credit card bill — and what you can do to rid yourself of high-interest rate debt once and for all.

What Happens When You Don’t Pay Your Credit Card Bill

The First Month

If you miss one monthly payment, you’ll have to pay a late fee, which could be charged even if it’s just a day late. Check the fine print on your credit card statement to see exactly how much you’ll owe. It’s possible you may also see your interest rate increase. In 2024, the average credit card interest rate is expected to hover around 20%. But because on-time payments are the most important factor in the FICO formula, missing a payment can also send your FICO score down by a few points immediately.

2 to 3 Months

If your payment is more than 30 days late, your delinquent account will be reported to the credit bureaus, says Beverly Harzog, consumer credit expert and author of The Debt Escape Plan. The missed payment could remain on your credit report for up to seven years, but you can minimize the damage to your score by making on-time payments going forward.

When your account is between 60 and 90 days past due, your card issuer may block you from charging new purchases, says Kevin Gallegos, senior vice president at Achieve, a financial education and debt remediation company. If you continue to avoid paying your credit card, you’ll rack up even more late fees, the exact amounts of which will vary by the card issuer. At this point, you’ll also start getting annoying phone calls from your credit card company, and they may also increase your interest rate once you hit the 90-day delinquency mark, says Gallegos.

4 Months or More 

If you stop paying your credit card bill for several months, your account may be “charged off” — or considered unlikely to be paid back — and sent to a collection agency, Harzog says. Once your debt has been sent to collections, your credit card company “will no longer negotiate with you because they no longer own the account. You'll have to deal with the collector,” she says.

Having an account sent to collections can wreak havoc on your credit score, and it can stay on your report for up to seven years. This can be devastating since your credit score determines so many other important aspects of your financial life, like your ability to get more credit, open new cards, secure a loan, or apply for a rental, Gallegos explains. (If there’s any silver lining, it’s that collectors are often willing to settle with you to pay less than you originally owed.  But this is not a place to go unless you have to because of the havoc it wreaks on your credit score and, in turn, the rest of your financial life.

How to Dig Yourself Out of Credit Card Debt

Call Your Credit Card Company

If you’re generally good about making your payments but have recently fallen on hard times, call your credit card company to see if they can offer support. And if any extenuating circumstances are impacting your finances (a layoff, an illness, etc.), be sure to mention it. That’s the advice shared on the HerMoney Podcast by Jennifer Streaks, senior personal finance reporter at Insider.

“Hopefully, if you have a great history with this creditor up until that point, they will be happy to work with you,” says Streaks. They want you to keep your account on track with them, and they want to get paid, so it’s in their interest to work with you.”

You can ask them to waive the late fee, give you a lower interest rate, or even work with you on an individual payment plan. During negotiations, emphasize your history of making on-time payments or carrying a low balance, along with your desire to continue using your card as a financial tool.

Tackle Your Highest-Interest-Rate Debt First

Once you’re in a position to throw some money at your debt, look at the interest rates for each credit card you hold. “I would definitely go with getting rid of the highest-interest debt first,” says Streaks. “That’s what’s costing you the most money, so get rid of that first.”

This method of debt repayment is commonly known as the “avalanche” method, wherein you focus on the card with the highest interest rate first. This ensures that more of your money is going toward paying down the principal (rather than going toward interest) as quickly as you can. Once you’re done paying down the credit card with the highest interest rate, you’ll move on to the debt you have with the second highest interest rate and focus your extra cash there until it’s paid off. Just don’t forget to still make (at least!) the minimum payments on all your other cards so you can keep your other debt in check and continue your history of on-time payments.

Weigh the Pros and Cons of a Balance Transfer

A balance transfer card can be a solid option for paying off debt — as long as you know what you’re signing up for. The process involves moving your debt from your regular high-interest-rate credit card onto a card with a much lower “teaser” rate. For example, you may find a 0% temporary rate that’s good only for a certain period of time — typically a promotional period of around a year. Most card issuers charge a fee of around 3% of your balance to complete the transfer.

Your goal would be to pay off the entire balance before the end of the promotional period. Once your low rate expires, the interest rate will rise — and might be even higher than the one on your original card. Then you’ll be charged that higher interest rate on whatever balance remains.

“You have really got to read that paperwork,” says Streaks. A balance transfer card works only if you can afford to pay it off and are diligent about it.”

Before you sign up for one, do some self-reflection on your spending style. Can you commit to paying off your balance during the promotional period? Is there any danger that a 0% interest rate might tempt you to get even further into debt? Compare different offers for balance transfers, and run some calculations on whether the fees (and potentially higher interest rate if your plan doesn’t work out) will be worth it.

The Bottom Line

Neglecting your credit card payments can have severe consequences that extend far beyond financial stress. Thankfully, we can all avoid getting trapped in a downward spiral of debt by paying our bills on time every month and getting on a strategic repayment plan whenever we do fall behind. Remember that careful budgeting and proactive communication with your credit card company is key to regaining financial stability and breaking free from the kind of debt that can negatively impact your credit score and your life in the long term.