What can the credit card company do, if I fail to pay my bill?

You’d probably agree that access to credit is one of the awesome things about living in the greatest capitalist economy in the world. In fact, it’s the lifeblood of our economic system, because it makes life a lot easier and fun for everyone. 

But, it’s easy to take it for granted. To stress how important it is, imagine a scenario where you’d have to have all the money you need before you can buy or rent stuff! That’s cumbersome, crippling, and dreadful, right? So, at the risk of stating the obvious, credit is super-convenient.

And we ought to show deep appreciation for this financial tool, by abiding by its terms. But, life happens, and there may be times when you’re in dire straits, or you may have some unforeseen circumstances to contend with and you’re unable to pay your bills.

Perhaps, you lost your job, had an accident, or you’re sick... That’s understandable, but it’s one side of the story. The other is that the financier is losing money at this time. Naturally, they’d make attempts to ensure you pay as agreed.

What are the steps they could take if you’re not paying your bill? It’s important to know so that you can be familiar with and prepare for the potential consequences.

Some actions a credit card company could take if you refused to pay your bill

The following are some steps the credit card company could take to protect their interest (pun intended):

1.      You’d have to pay late fees

2.      You’d have to pay higher interest

3.      You’d be reported to credit bureaus

4.      Your credit score will be negatively impacted

5.      Your debt could be assigned or sold to a collection agency

6.      You could be sued

7.      Your assets could be seized

8.      Your estate could be liable even after you die

So, let’s look at what each consequence above entails.

1.    You’d have to pay late fees

If you missed a payment, you’d have to pay a penalty. If within a six month period you missed another payment, you’d have to pay another penalty, which is higher and this fee could be added to the interest you have to pay. The late fees to be paid as a penalty vary from lender to lender.

If you contact some card issuers beforehand that you might be missing a payment, they may waive the first late fee. But, you will be charged interest on the purchases you make during the period you have missed some payments.

2.    You’d have to pay higher interest

In addition to the above, you’d also lose the ability to take advantage of the introductory APR. The APR is the interest you are required to pay on the credit. If you were making payments as at when due, the introductory APR implies that you won’t be charged on purchases you make for a certain period.

But if you’re missing payments, you’d pay a higher interest. This is a no brainer because in simple terms, you’re effectively borrowing the money for much longer than you agreed to.

3.    You’d be reported to credit bureaus

If you missed more than three payments, you’d be reported to credit bureaus.

4.    Damage to your credit score

To have your records filed with the credit bureaus will have an adverse effect on your credit score. As you know, your credit score is one of the most vital metrics lenders use in determining your creditworthiness. It’s assessed differently by different lenders.

Honestly, you don’t want your credit score damaged, because you’d have a harder time getting credit in the future, and even if you do, you’d pay a very high interest rate. In effect, you’d be penalized for having mismanaged debt in the past.

5.    Your debt could be assigned or sold to a collection agency

Your debt may be assigned to a collection agency – in which case, it is still owned by the original lender, the agency is merely tasked with its collection – or the debt may be sold outright, and the agency now owns the debt. Once the debt passes on to an agency, you no longer have the luxury of time, because agencies act fast, since they are paid on a performance basis.

6.    You could be sued

 If the agencies are unable to collect the debt within a reasonable time-frame, you’d be sued. If the court’s judgment favors the lender, and you are compelled to repay the debt, your account could be frozen. If, however, the court grants judgment in your favor, the suit will not be reflected in your credit report. If the whole or a part of the debt is forgiven, the law requires that you pay tax on the amount. 

 But bear in mind that you may be asked to bear the legal fees incurred by the lender. If you are found guilty and compelled to pay but have no money to pay the fees or, and the debt, you may consider filing for bankruptcy. 

But this should be the last resort because it has serious consequences should you like to access credit in the future. There are different types of bankruptcies individuals and organizations can file for. Naturally, each has its requirements.

7.    Your assets could be seized

Just as your income (paid into your bank account) could be frozen to compensate the lender for funds lent to you, your assets can also be attached to the debt. In effect, they become the collateral, when you default. This is not a pleasant experience, so, it’s smart to ensure you study the contract very well.

8.    Your estate could be liable even after you die

It’d be nice if your debt ceases to exist when you die, right? After all, there may be funeral expenses to be borne by your family (and estate), and they’d probably be mourning for some time. In simple terms, your estate refers to everything you owned while on earth and the courts allow that debts be deducted from the deceased’s estate.

In conclusion, you can see from the severe consequences above, that the smart thing to do is to ensure that you always pay your bills on time.

Michael Newman

Note: The above was written for a client. It’s here as a sample of my writing. It belongs to my client.