What are the consequences of missed payments on consumer debts?
When you create an account with a company, you agree to make monthly payments. These payments must be made on time. Otherwise, you will negatively affect your relationship with your financial company, thus reducing your chances of taking a loan from other MFOs in the future.
“Whether it’s a layoff, a medical emergency, or the debt that’s much more than you can afford, difficulty paying credit card bills remains a problem,” noted Nick Wilson, CEO of AdvanceSOS. As an experienced loan officer, Nick shares what are the consequences of missed payments on your debts.
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Unfortunately, not everything always goes according to plan. Perhaps you’ve had a busy month, and the bills have gone out of your head, or maybe your car needs to be repaired, but you didn’t have enough money for this. Whatever the reason, you can take steps to mitigate the damage if you missed a payment or think you’re about to miss it anytime.
But when you have already stopped making any credit card payments, then you will be charged late fees and high-interest rates. Thus, your credit will also suffer. In addition, if your unpaid balance is delayed for too long, your account may be placed on debt collection, and you may be sued to collect the debt.
Credit card late payment
An overdue credit card payment is if it’s already more than 30 days and it won’t present your own credit report before then. Some lenders do not even report missed payments until 60 days past. Even if the overdue payment is not reported to the credit bureau immediately, then you may be subject to a late payment penalty. “As missed payments accumulate, the debt consequences can be even more severe,” states one of the financial wellness experts at GreenPath Financial Wellness.
If your debt remains unpaid, then a borrower could face write-offs and even higher fees and fines. The cumulative effect will make it harder to pay off their debt and could potentially push any of their financial goals into the future.
What if 30-days overdue?
Missing a credit payment for 30 days or even more days, you will get a late fee and interest rate penalty. In addition, your credit score may deteriorate as soon as a late payment appears on the credit report. Payment history is the main factor influencing your FICO score accounting for 35% of it.
Missing a payment within 30 days can result in a 50-100 point drop in a credit score. Several details determine the impact of a late payment on your account. For example, the later a payment is made, the more it can damage your account. Your credit score can also affect how much a missed payment can sting.
What if 60-days overdue?
As you might expect, financial problems seem to be worse if a credit card payment is 60 days overdue, unlike a payment that is 30 past due. The later an overdue payment occurs, the more it can hurt. At this stage, you may face additional fees and penalties; thus, your credit rate may deteriorate even further.
If your credit score is dropped, then a borrower may not see such a big drop. However, if you miss two payments, it can result in penalties being charged on your card, which can be costly. According to the Consumer Financial Protection Bureau, while federal law does not restrict the interest rates that financial companies charge, some states can set their ceilings.
What if 90-days overdue?
Once your overdue payment is already 90 days, then your credit card company may send your invoice for collection. In this case, the collector will contact you about the overdue payments you have. Moreover, your credit score will suffer greatly. A payment 90 days late can even lower your credit score by 180 points.
Demonstrating consistent risk-taking behavior is a strong red flag for the bureau. The credit score reflects this. Even other card issuers who notice a 90-day delay in your payment may lower your limits.
What if 120/150/180-days overdue?
After you miss at least four payments, you may face similar consequences as if you were late for 90 days of your debt. However, the consequences will be more serious. The card issuer agency will almost certainly go out of its way to pay off your debt. Besides, your credit score may deteriorate further. If it hasn’t already, then your credit card issuer would sell your current debt to the appropriate collection agency as soon as you are 180 days late and have to be written-off.
Debt written off is not justified as you are still responsible for paying it. The decisions on when to withdraw funds from an account are different in various companies. Many write off after six months, but other companies can wait 12 months and sometimes longer. A write-off is a big negative sign that stays on your debt report for at least seven years.
A debit account is similar to a delinquent account. Consequently, the more you have on the credit report, the more the companies worsen your current credit rate. In addition, if you still have any old unpaid debts, you will be facing a debt collection lawsuit. Therefore, state laws govern the period during which a collector must sue you, calling the statute of limitations which according to the CFPB is three to six years.
Settling your debt can be done instead of going to court. Thus, debt settlement indicates that your creditor agreed to accept less than you have in full payment. When you pay off the current credit card debt, you should be patient, as building a credit rating may take a long. The best way to recover from your credit card debt is to keep all payments up to date, consistently pay on time, keep a close eye on spending cuts, and keep debt levels low going forward. Whenever someone’s credit is damaged, they advise not to panic as there is always a path to recovery!
About the author
Amanda Girard is a financial copywriter at AdvanceSOS. Amanda specializes in translating niche-specific technical research and discussions by finance experts. She spent six years in the finance field before joining our team to serve you.