The consequences of credit card non-payment can be far-reaching. Credit card companies can come after you in a variety of ways to try to get you to pay. Credit card delinquency can also impact seemingly unrelated portions of your life, ranging from your ability to secure employment to your insurance rates. The results of not paying your credit cards can be just as bad as the pain of opening up your check book in the first place.
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Fees and Interest Rate Hikes
One of the first things credit card companies do when you are late paying your bill is hit you with a late fee. If you are also over-the-limit on your card, an over-the-limit fee can be charged as well. These fees can be applied each month that you do not pay or are over your limit. Fees are tacked on to your principal balance, effectively increasing your debt since it is not being paid down.
Although government regulations have curtailed the practice, credit card companies can raise your interest rate when you are late or in default. This can hurt you if you get caught up and decide to start using your card again. Card companies do have to give you 45 days notice prior to a rate hike, though, and the new interest rate cannot apply retroactively.
Once you are about 60 days, late credit card companies will begin calling you to bring your account current. Next, they turn your account over to an outside collection agency. Although federal guidelines govern the practice, debt collectors are persistent in phoning day and night to set up a payment plan or settle the debt in part or in full. The longer this process goes on, the better the chances are that you will be sued. If you are, you will be summoned to civil court, where a judge can decide to garnish your wages if you are unwilling to or cannot pay your debt. Garnishment is embarrassing and can cost you up to 25% of your wages.
At this point it likely goes without saying, but your credit card accounts are closed and your credit report is in the process of being ruined. This is where the consequences of credit card delinquency can sneak up on you.
Impact of Bad Credit
As your credit score drops because of credit card non-payment, other results of delinquency surface. As Steve Bucci of Bankrate.com points out, a wrecked credit report can hurt your chances of obtaining employment, getting good insurance rates and choosing the type of apartment you want to live in (forget buying a home unless you are sitting on a load of cash). This is because you credit report can factor into the decisions that govern each point.
Companies regularly check a prospective employee's credit report before making a hiring decision. Bad credit makes you less desirable. Insurance companies run credit reports as well. A bad credit profile means you won't get the best deals. And of course, landlords and property management companies usually check your credit, using it as the basis for whether or not you qualify to rent their apartment.
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