If you quit making payments on your credit card, your creditors will begin collection actions. Since you have a legal contract to pay back your debt, your creditors will typically pursue you until you make some sort of payment arrangement or you file bankruptcy. At first, collection actions may be mildly bothersome, but they can range all the way up to legal action that seizes your property and assets. Damage to your credit report is inevitable.
When you first miss a payment, your credit card company is likely to send you a letter or call you as a "reminder" to make payment. The farther you fall behind in your payments, the more aggressive the letters are likely to become. Creditors will typically phone your house multiple times per day and may threaten legal action in writing. While the Federal Trade Commission has laws regarding when and where you may be contacted, the parameters are fairly broad. Your credit card company will also tack on late fees and most likely raise your interest rate. The credit reporting agencies will report your delinquent payment, damaging your credit score.
After about six months of non-payment, your credit card company will usually "charge off" your credit account. Far from releasing you from your payment liability, a charge-off actually is one of the most damaging things that can happen to your credit score. A charge-off means that your credit card company thinks it will never get paid on your account, and so it takes a tax write-off and sells your debt to a collection agency. According to credit reporting agency Experian, having your account in collections is second only to bankruptcy in terms of the damage it will do to your credit report.
Lawsuits & Judgments
Some companies will file a lawsuit against you if you fail to repay your credit card debt. If your creditor wins in court, which is likely assuming the debt is valid, it can get a judgment against you. Judgments open up additional collections opportunities for creditors. With a judgment, your credit card company can garnish up to 25 percent of your wages in most states. A creditor may also put a lien against your property, preventing you from selling it without paying off your debt.
Right of Setoff
If you have assets such as a checking or savings account at the same bank to which you owe credit card debt, you might lose those assets. Though laws vary by state, the right of setoff would allow your credit card company to take your cash to pay off your credit card debt.
- Federal Trade Commission: Debt Collection FAQs, A Guide for Consumers
- Experian: Improve Your Credit Score
- Experian: Credit Advice
- Experian: Credit Advice
- Bankruptcy in Brief: Lawsuits
- United States Department of Labor: Wages and Hours Worked, Wage Garnishment
- Ice Miller, LLP: A Creditor's Right to Setoff
- The Free Dictionary: Rights of Set-Off
- Jupiterimages/Comstock/Getty Images