What Happens When You Stop Making Credit Card Payments?

John Egan

Whether the reason is a layoff, a medical emergency or a pile of debt that is more than you can afford, struggling to pay credit card bills is a problem many people face. When you quit making credit card payments, you can be charged late fees and higher interest rates and take a hit on your credit. If delinquency continues for more than a few months, your account may go to collections or be charged off, and you may be sued.

Brent Vallat, head of lending at Varo Money Inc., a provider of mobile banking services, says credit card issuers understand that sometimes people face circumstances where money gets tight.

"However," Vallat adds, "there's a huge difference between the willingness to pay at least some of your bill versus stopping your payments altogether and going into default." Ideally, you want to keep paying your credit card bills, even if you're covering only the minimum amount due.

The Stages of Credit Card Delinquency

A credit card payment is considered late if it's past due by at least 30 days.

If you look at your credit report, this is how the credit bureaus traditionally list late payments:

-- 30 to 59 days late

-- 60 to 89 days late

-- 90 to 119 days late

-- 120 to 149 days late

-- 150 to 179 days late

-- 180-plus days late (charge-off)

By the way, your credit report won't show a payment that's up to 29 days late. However, your card issuer may contact you to remind you of your late payment.

[Read: Best Credit Cards for Bad Credit.]

What Happens at 30 Days Late

If you miss a credit card payment by 30 to 59 days, the card issuer will probably charge a late fee and the interest you owe on the balance.

"If there's a valid reason you missed the payment, you might call your credit card company and explain the situation, and they may waive the fee as a courtesy, especially if you have been a good customer and get current on your account," Vallat says.

But you can pretty much count on the card issuer telling the three major credit reporting bureaus -- Equifax, Experian and TransUnion -- that you were at least 30 days late in paying your bill.

Once a late payment shows up on your credit report, your credit score could drop. This is because payment history comprises 35 percent of your total FICO score and is the biggest factor affecting it.

Several details determine the impact of a late payment on your score, including how late the payment was, how recent it happened and how often you've made late payments. One recent late payment could harm your FICO score more than several late payments made years ago.

Your credit rating matters too, as cardholders with good credit may see a more significant drop than cardholders with lower credit scores. A cardholder with a 680 credit score could a drop of 60 to 80 points with a 30-day delinquency. With a 780 credit score, the same delinquency could result in a drop of 90 to 110 points.

A history of late payments is worse than a single slip-up. If you continue making on-time payments after a slip-up, creditors can see that you simply made a mistake and are less likely to view your late payment as an indicator of future risk.

A single payment made past the 30-day mark can linger on your credit report for seven years, according to Experian.

What Happens at 60 Days Late

As you'd expect, the financial pain of a credit card payment that's 60 days late is worse than it is for a payment that's 30 days late.

Aside from late fees, which are usually $25 to $38 a month, your interest rate will likely go up.

At the 60-day mark, your credit card issuer might bump up your interest rate to a penalty APR -- and it can be costly. A penalty APR can jump as high as 29.99 percent. And you might be stuck with the penalty APR for up to six months before the card issuer assesses whether to lower the interest rate.

The higher penalty APR will boost the cost of your credit card debt and stretch out the amount of time to pay off the debt.

As with 30-day late payments, 60-day late payments will damage your credit in the short term, but it can bounce back relatively easily once you make payments regularly.

Just know that the period before your payment shifts from the 60- to 90-day late stage might be your last chance to avoid your account being turned over to a collection agency. However, a credit card issuer typically handles attempts to collect late payments on its own until you've reached the 180-day point.

[Read: Best Balance Transfer Credit Cards.]

What Happens at 90 Days Late

Once your payment hits 90 days of delinquency, the card issuer could send your account either to its in-house collection department or to an outside collection agency that has bought the debt. If this happens, the debt collector will reach out to you about the overdue payments.

In addition to charging fees and penalties, the card issuer at this point might lower your credit limit, as could other card issuers that have spotted the 90-day late payment on your credit report. If you have other credit card accounts with the issuer, the interest rate on those may increase.

A payment that's at least 90 days past due signals that you're in financial trouble.

What Happens at 120, 150 and 180 Days Late (Charge-Off)

Once you've missed at least four payments, you will face more of the same effects as a 90-day late payment but harsher. The card issuer or collection agency almost certainly will step up efforts to get your money. On top of that, your credit score is likely to drop even more.

If it hasn't done so already, your credit card issuer will most likely sell your debt to an outside collection agency once you're 180 days late. This is known as a charge-off, meaning the card issuer has written off your debt as a financial loss.

A charge-off is a big negative mark on your credit report.

"A charge-off notation doesn't mean that the debt goes away, only that it's been sold to a new owner who will have the right to collect the balance," says Cara O'Neill, bankruptcy editor at Nolo.com, a legal advice website for consumers.

State laws govern how long a debt collector can sue you for unpaid bills, referred to as the statute of limitations. This period varies by state but usually ranges from three to six years, according to the Consumer Financial Protection Bureau.

Debt settlement, which occurs when a creditor or collection agency settles your account for less than the full balance, may be an option at this point. However, debt settlement agreements have drawbacks, including the need to make a payment immediately.

"Most debt collectors aren't interested in payment plans," O'Neill says. "Instead, they'll want a large lump-sum payment in exchange for a reduced balance."

What to Do if You're Late on Credit Card Payments

The longer you wait to deal with late payments, the worse the situation can get. And creditors may be less willing to work out a payment plan the later you are.

Here are five steps to take if you find yourself in a bind with your credit cards.

1. Review your household budget. Paying your credit card bills means you'll need to have enough income left over to cover other expenses. Take a look at your household budget to identify areas where you can reduce expenses so you can make at least the minimum credit card payments before their due date.

In addition to cutting back expenses, consider how you can increase your income. Asking for a raise, taking on freelance work or securing a part-time gig can help you bring in more money.

And this should go without saying, but don't put any more charges on your credit cards until you've resolved your late payments.

2. Call the credit card company. This is one of the most important steps you can take. As hard as acknowledging your overdue credit card payments might be, hiding from them does no good.

If you realize you're going to miss a payment or two, alert the credit card issuer ahead of time, rather than waiting until after the fact. If you've already missed a payment, don't put off contacting the card issuer.

[Read: Best Credit Cards Without Balance Transfer Fees.]

"Increasingly, creditors have become more attuned to temporary situations and can offer temporary payment arrangements until you can get back on your feet," Vallat says. "Remember, all you need to do is make your minimum payment to keep your credit intact."

Those temporary payment arrangements could include a lower minimum payment, a reduced interest rate, a break on fees and penalties, or a revised payment schedule.

When dealing with your credit card company, the CFPB recommends explaining:

-- Why you're unable to make the minimum monthly payment.

-- How much you can afford to pay.

-- How long you expect to be paying less than the minimum amount due.

-- When you can restart regular payments.

3. Research debt consolidation. Debt consolidation either through a balance transfer credit card or a loan can help you manage payments if your interest charges have grown out of control.

With a balance transfer credit card, you will be able to pay down your balances interest-free during the card's introductory period. However, you'll most likely have to pay a 3 to 5 percent balance transfer fee.

A debt consolidation loan offers a set repayment schedule for paying off your bills, but you'll fork over interest to do so. Depending on your credit rating and the lender, APRs for debt consolidation loans typically range from about 3 to 36 percent.

4. Reach out to a credit counseling agency. If you're facing a financial hardship and don't expect to bounce back quickly enough to resume regular payments within a few months, you might want to seek help from a credit counseling agency.

A credit counselor can work with you and your credit card companies on a debt management plan. This involves negotiating with card issuers on new repayment terms and folding all your credit card debt into a single payment that you send to the credit counseling agency and the agency distributes to creditors.

Many credit counseling agencies are nonprofits and may offer free initial consultations. However, services such as debt management programs typically require a fee. The National Foundation for Credit Counseling is a resource for finding NFCC-certified credit counselors.

5. Consider bankruptcy. Bankruptcy is not an ideal option, but if you're overwhelmed by credit card debt, it's available. In most cases, filing for bankruptcy will eliminate at least some of your credit card debt.

Two kinds of bankruptcy are available to cope with credit card debt:

-- Chapter 7. This type of bankruptcy wipes out much of your credit card debt and other debts. A Chapter 7 bankruptcy stays on your credit report for 10 years because none of the debt is repaid.

-- Chapter 13. This type of bankruptcy enables individuals with regular income to develop a plan to repay all or part of their debt. A Chapter 13 bankruptcy stays on your credit report for seven years.

"Filing for bankruptcy early in the process can prevent a collection lawsuit, wage garnishment or property lien," O'Neill says.