NEW YORK CITY, NY / ACCESSWIRE / January 11, 2025 / There could be many reasons why someone might let their credit cards go unpaid for months or even years. This may result from a major financial hardship such as a job loss, divorce, or medical issue. On the other hand, it may also be due to financial negligence if the person thinks there won't be serious consequences.
Below we'll discuss what happens when credit card bills go unpaid for an extended time, and how something like a debt consolidation loan may be able to help you from falling into financial
How long before unpaid credit card debt gets charged off?
Credit card companies aren't going to wait indefinitely to be repaid. At first, when payments are missed, they will typically impose late fees and/or a penalty interest rate that's higher than your standard one. And keep in mind that interest charges will build daily on the unpaid balance due. This will cause the debt to compound and grow larger the longer the situation persists.
Eventually, the credit card company will decide that the cardholder is unlikely to pay their bill in full. This generally occurs between 90 and 180 days after the account becomes delinquent. The credit card company will "charge off" the account when this happens. This means it writes it off as bad debt, which has implications for both its balance sheets and tax purposes. Additionally, the cardholder's account will be closed and no further charges can be made.
Meanwhile, the outstanding debt does not go away. The debt may be sold to a third-party collection agency. The collection agency can then pursue repayment, hoping to profit from the unpaid debt obligations it now owns.
Collections will pursue your debt
Once a collection agency has your account, things can potentially become tense. They might file a lawsuit against you in an attempt to recoup what's owed. This could result in the following:
Garnished wages
Liens against your property
A freeze is placed on your bank accounts
Your credit score will drop
Another thing a collection agency will do is report the account to the three major credit bureaus, Transunion, Equifax, and Experian. This will appear as a major red flag on your credit report and can significantly reduce your credit score.
FICO, a company responsible for calculating credit scores, weighs payment history by as much as 35% of your score. An account being sent to collections will have a significant negative impact on your credit score.
Unfortunately, when this item appears on your credit report, it will typically stay there for seven years whether it's paid or goes unpaid. Unless the collections claim can be disputed on the grounds of an error or inaccuracy, it's unlikely that this item will be removed before then. That could significantly impact your ability to be approved for new loans or credit lines, such as a mortgage, auto loan, or credit cards.
The only way around being sent to collections is to not get into the situation in the first place. If you're experiencing payment issues with credit card or personal loan debt, you may want to consider a debt consolidation loan. This loan can be used to pay off other high-interest, unsecured loans. Debt consolidation loans typically have a lower fixed interest rate, making for a more manageable payment.
The bottom line
When credit card debt goes unpaid for an extended time, it will eventually be sent to collections. This will appear as a negative item on your credit report for the next seven years and significantly cause your credit score to drop. To avoid this, do your best not to let things get to this point by considering your options, such as a debt consolidation loan.
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SOURCE: OneMain Financial
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