Dear Debt Adviser,
I have a lot of unsecured credit card debt and I am not sure what to do. I want to know what could happen if I don’t pay the credit card bills.
— Theresa

Dear Theresa,
It is common for people in your situation to become overwhelmed and wish to ignore their financial problems. Let’s take a look at what you may face if you stop paying your credit card bills:

  • Your creditors will assess late fees to the tune of $39 or more per month.
  • Finance charges will continue on the balances of your accounts.
  • The creditors will likely raise your annual percentage rate (APR) to approximately 29.9 percent because you have not honored your contract.
  • Once your balances exceed your credit limit, if they do not already, you will be accessed an over-the-limit fee of $29 each month.

The interest and fees will add up quickly with no payments made on the accounts.

Example: Suppose you have three credit cards with balances of $2,000 each for a total of $6,000. Add $39 for a late fee, $29 for an over-the limit-fee and $49.83 in finance charges for an APR of 29.9 percent. Your balances would now be $2,107.83 for each card and you will have been charged a total of $333.49 in fees and interest for one month on all accounts.

Ignore the problem for another month and your balances would total $6,659.37. You can begin to see what a hole you will dig for yourself if the bills go unpaid.

It will add up fast
Late fee: $39.00
Over-the-limit fee: $29.00
Finance charge @ 29.9%: $49.83
Total fees & interest : $107.83
New balance on card: $2,107.83

If you pay nothing for one month on a $2,000 balance with an APR of 29.9 percent, your balance will increase rapidly, with fees and interest.

Creditor calling

While your credit card balances are growing quickly without payment, your creditors will contact you by phone regarding your unpaid bills. The calls will be persistent and will not stop unless you request so in writing.

With no response or payment from you, your creditors will turn your account over to a collection agency and calls will begin again in earnest. The collection agency will do its best to convince you to make payments and will often demand a lump sum payment.

Bad debt stays with you

After attempting to collect the debt with no results, the creditors will eventually charge off your debts as a bad debt and you may think that the situation is solved. However, the charged off accounts will appear on your credit report and make it difficult for you to secure a mortgage or other loan and could affect your ability to obtain a job, get good car insurance or even rent an apartment.

Now for the first part of your question, ‘I am not sure what to do.’ I definitely do not recommend you follow the course of action above.

Take this course of action

Even though it can be tough to stop overspending and pay off your debt, it is a much better alternative than not paying your bills:

  • Stop charging on your credit cards now.
  • Work out a bare-bones spending plan and pay as much as you can on your credit card bills.
  • Seek professional help from a nonprofit credit counseling agency if you are unable to get things under control yourself. These organizations can help you analyze your financial situation, set up a spending plan, work with your creditors and establish a debt management plan or refer you to legal or other assistance depending on your need.

You can pay off those debts. And you will sleep much better at night knowing you are taking action rather than ignoring the problem. Good luck!