What Happens If You Stop Paying on Credit Cards?

Creditor Contact

If you stop paying on your credit cards, the credit card company will contact you by phone, mail or both to find out if it was a mistake and remind you that the payment is due. Communication with the creditor is crucial at this point to avoid high interest rates, collections, negative marks on a credit score or possible wage garnishment. Most creditors are willing to work out a payment plan that will benefit both parties.

Interest Rates

If a payment plan with a creditor is not possible or correspondence from a credit card company is ignored, the interest rate on the credit card will increase. Most credit card companies allow a 30-day grace period before they consider a missed payment late. If no payment plan or contact has been made after 30 days, the creditor considers the account delinquent. Depending on the starting interest rate of the credit card, the delinquency can cause your interest rate to rise dramatically. It's not uncommon for an interest rate to reach 30 percent or higher on delinquent accounts.

Collections

If a credit card holder cannot be contacted and the bill remains unpaid, creditors will use a collection agency to get their payment. A debt collector may contact you at home, work or even call friends or family if he is unable to contact you directly. At this stage, you may still be able to work out a payment plan with the agency to stop the collection process and prevent legal problems.

Credit Rating

If a credit card account has gone to collections, it's very likely that a report of non-payment has been submitted to a credit reporting agency. Delinquent payments on a credit report may increase your interest rates with other lenders and hinder future lending. Negative marks will stay on your credit report for seven years, which can affect interest rates and credit approval on future credit cards, mortgages and car loans. It also can affect your future employment, because businesses sometimes check credit reports as part of the hiring process.

Wage Garnishment

If collection processes have been exhausted or a credit card holder refuses to make payments, the lender may file legal proceedings with a local court. Depending on the laws for a particular state, a judgment against you may include garnishment of wages until the debt is paid.