Many people have difficulty keeping up with credit card payments. If you stop paying, you may face late fees, higher interest rates, and even a debt collection lawsuit. According to FICO, more recent collection activity can have a greater negative impact on your credit score.
The Stages of Credit Card Delinquency
A credit card payment is late if it is received after the due date. However, according to Equifax, it will not appear on your credit report until it is 30 days past due. This can trigger a drop in your credit score between 50 and 100 points.
The financial consequences worsen for a credit card payment that is 60 days past due. At this point, you will be subject to more fees and penalties and see your credit score drop even more.
Once your payment hits 90 days of delinquency, the credit card company could send your account to collections. If this happens, the debt collector will reach out to you about the overdue payments. This will cause your credit score to take a sizeable hit, by approximately 180 points.
What Happens at 120, 150 and 180 Days Late?
After you miss at least four payments, the card issuer or collection agency will increase its efforts to collect the debt.
If it hasn’t already, your credit card issuer will most likely sell your debt to a collection agency once you’re 180 days late, which is known as a charge-off. A charged-off debt stays on a consumer’s credit report for seven years. Unlike the name, the debt is not forgiven, and you are still responsible for paying it.
While each consumer’s financial situation is different, there are ways to determine if you are carrying too much credit card debt.
Consider your answers to the following questions:
- Is credit card debt affecting your financial and emotional well-being? High credit card balances can lower your credit score and create financial and emotional stress. As a general guideline, your monthly payments should not exceed 10 percent of your monthly income.
- Are you paying only the minimum? Credit cards typically have low monthly minimum payments, but that doesn’t mean they are affordable just because you can cover that amount. If you are only able to make the minimum payment, that can be a sign you have too much credit card debt.
- Is your credit card debt impacting your credit score? Credit cards can help your credit score- or hurt it, depending on how you use them. It is recommended that you keep your credit utilization below 30 percent. Having significant credit card debt can have a negative impact on your credit score. This can make other debts, like your mortgage and car payments more expensive.
As bankruptcy attorneys, we see credit card debt as one of the most common problems facing those with serious financial challenges.
Filing for bankruptcy is a viable option for those struggling with insurmountable credit card debt. Chapter 7 is the fastest form of consumer bankruptcy and forgives most unsecured debts like credit card debt, medical bills, and personal loans. There are certain qualifications a consumer must meet regarding income, assets, and expenses to file for Chapter 7 bankruptcy, which is determined by the bankruptcy means test.
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