The statistics are terrifying: The average American has about $16,000 in credit card debt with an average interest rate of 12.78 percent. That's a lot of debt. Millions of these credit card users are able to pay their minimum payments every month, but what about those who can't? No, people who can't pay their debts won't be sent to jail, but their credit will go down the tubes. And bad credit? It affects a consumer's ability to get new loans, rent property or even get a job. Scary, huh?
What can you expect if you stop paying your credit cards? Read on.
Collection Calls and Letters
Creditors will start calling you a few days after your first missed payment -- sometimes several times a day. Stop paying your credit card bill for good and eventually that debt will be sold to a collection agency. These collection agencies can be a pain to deal with -- they're sometimes abusive and threaten legal action.
The constant phone calls and letters can be annoying and embarrassing, especially if they contact family and your workplace to find you. However, you can get them to stop by sending them a sort of cease-and-desist letter.
Negative Credit Report and Low Credit Score
Credit card companies will report payments that are 30-plus days late to the three credit bureaus (TransUnion, Experian and Equifax). Your payment history makes up about 35 percent of your FICO score, so consistently missing payments will impact your score dramatically. The companies will continue to report when you're 60 or more days late until they eventually "charge off" the account.
A "charged off" account means the credit card company has written off the debt as bad debt for accounting purposes. Eventually the company will sell the debt to a collection agency.
Late payments and charged-off credit card accounts will remain on your credit report for at least seven years. Over time, these accounts will mean less for your overall credit score, though it will stick around to haunt you for a long time.
Credit card companies and collectors can sue you if they wish -- and they commonly do these days. If you're sued, you'll need to hire a lawyer and fight the case -- you'll lose by default if you ignore the summons. The company can then turn around and have your wages garnished in order to collect the debt until its repaid in full. This decreases your income and causes embarrassment at work.
How did you pay down or eliminate your credit card debt?