Credit cards are useful tools for providing financial security as well as building a good credit record, but the convenience and ease of credit cards can easily lead to a build-up of credit card debt. Unpaid credit card bills can get out of hand and lead to problems that hinder your financial freedom and put you at the mercy of the credit card companies. It is important to at least pay the minimum payment on your bill every month.
Types
In the event that you are unable make payments on your credit card bill, the credit card company may take several courses of action. You will be notified of the delinquency through letters and phone calls, which will become increasingly frequent once your debt is turned over to a collection agency. Late fees, which can total up to $39 per missed payment, and higher interest rates of up to 30 percent will be assessed to your account.
Time Frame
Credit card companies will take action and make contact after the first missed payment. Depending on the amount of debt, the company will turn the debt over to a collection agency after three or more months of inaction. Nonpayment that spans more than one year can lead to legal action, such as the collection agency suing to garnish your wages and bank account or to put a lien on your property to repay your debts.
Effects
Any missed credit card payment is reported to credit bureaus and negatively impacts your credit score. A decreased score will make it more difficult to get a loan, to rent a home or to be hired for a job. According to the Financial Industry Regulatory Authority, 65 percent of your credit score is based on your payment history and the amount you still owe. A poor score could impact your financial future for the rest of your life.
Solution
Most creditors will negotiate payment plans to accommodate the amount you are able to pay each month. If you are upfront and explain your situation and make a good faith effort to remedy your debt, creditors will be more likely to work with you to eliminate fees and to reduce interest rates.
Prevention
Credit cards payments can easily get out of control, but easy steps allow you to manage and to prevent credit card debt. Establish a budget, and do not charge excessive items that you cannot afford. Pay your credit card bill monthly, and do not leave outstanding balances for more than six months so excessive interest does not compound. Carefully review the terms and conditions when you open a new credit card so you are aware of the rates and fees that might be applied to your account.
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