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What to Expect When You Stop Paying Your Creditors

Falling behind on your debt payments can feel scary. You may be worried about damage to your credit score or debt collectors calling you. But you do have options, and understanding the process can help you make the best choices for your situation.

This article will walk through what typically happens after you miss payments, how it can affect your credit, and steps you can take. The goal is to give you knowledge so you can handle things in the most constructive way possible.

The First 30-60 Days

When you first miss a payment, your creditor will probably try contacting you. This may start with a phone call or letter reminding you that your payment is late. Creditors often wait 30 days after a missed payment before reporting your account as delinquent to the credit bureaus.

So in the first 30 days, you have a window where you can still make a payment and avoid having a late mark on your credit report. Making a late payment is better than no payment at all, since it will minimize damage to your score.

After 30 days go by with no payment, your creditor will likely report your account as 30 days past due. This will show up on your credit report and start to negatively impact your credit score. The higher your score was to begin with, the more a single 30-day late payment could drop it.

Missing another payment will result in your account being 60 days past due. At this point, the creditor will continue trying to contact you but may also charge late fees and increased interest rates. Your credit score will take another hit.

60-90 Days Overdue

Once your account becomes 60 days late, your creditor may stop trying to collect payments themselves. Instead, they sell the debt to a collection agency or debt buyer. These companies specialize in collecting overdue debts.

The original creditor sells the debt for a fraction of what it’s worth. Then the agency tries to collect the full amount from you and pockets the difference. If you eventually pay, it can be a big profit for them.

Collection agencies are notorious for aggressive tactics like frequent calls. Be aware of your rights under the Fair Debt Collection Practices Act (FDCPA)[1], which restricts what collectors can do.

At 90 days without payment, expect your credit score to take another hit. The delinquency will remain on your credit report for up to 7 years.

120+ Days Overdue

After 120 days, your creditor may “charge off” the account. This means they remove it from their books as a loss, counting it as a bad debt. They can still try to collect or sell it to a debt buyer, but it’s no longer counted as an asset.

Charge-offs show up on your credit report and further damage your score. The account will likely be closed too. Even if you pay the debt later, the negative marks on your credit will remain for years.

For very large debts, creditors may decide to sue you. This is more common with debts over $5,000. If they win a judgement against you, they can pursue legal methods to collect like wage garnishment where they take money directly from your paycheck[6].

How To Communicate with Creditors

Communication is key when dealing with debt payment problems. Here are some tips for effectively talking to creditors:

  • Explain clearly why you can’t make payments and how much you can afford
  • Keep records of who you talked to and what was said
  • Follow up any conversations in writing to document the agreement
  • Ask for options like reduced or suspended payments if you can’t pay the minimum due
  • Don’t ignore calls – work out modified payment arrangements if possible

If you need help negotiating, nonprofit credit counseling agencies can assist you for free. They can contact creditors and develop debt management plans with reduced interest rates and waived fees to help you pay off balances[3].

How To Start Repairing Your Credit

The good news is that you can start rebuilding your credit right away, even if you are still paying off old debts. Here are some tips:

  • Get current on any accounts you are still paying
  • Pay down balances below 30% of the credit limit
  • Dispute any inaccurate information with the credit bureaus
  • Become an authorized user on someone else’s account to benefit from their good payment history
  • Open a secured credit card and use it responsibly to demonstrate you can handle credit again

With time and continued responsible habits, negative marks will fade and your score will gradually improve. Old debts fall off your report after 7 years.

Alternatives To Consider

Two alternatives that may help resolve debts are debt consolidation loans and debt settlement:

Debt Consolidation Loans

These loans roll multiple debts into one new loan with a lower monthly payment. You get the convenience of a single payment, and loans often have lower interest rates than credit cards. Personal loans or home equity loans are common for consolidation.

The risk is running up balances again after consolidating. Make a budget so you don’t need to rely on credit cards after paying them off.

Debt Settlement

With debt settlement, a company negotiates to pay off your debts at a reduced amount, usually 30-50% of what you owe. You make monthly payments to the company, which they put in a dedicated account until enough is built up to make settlement offers.

This can save substantially compared to paying off the full balances. However, it will damage your credit initially because you have to be behind on payments for creditors to agree to settle. And any forgiven debt may be taxable income.

What To Avoid

Some things to watch out for when dealing with debt issues:

  • “Credit repair” scams that promise to remove negative marks from your report illegally
  • Debt relief companies that charge big upfront fees before providing services
  • Firms that tell you to stop communicating with creditors
  • Companies that pressure you to make decisions immediately without reviewing contracts
  • Debt consolidation loans with very high interest rates and fees
  • Lenders who don’t consider your ability to repay the loan
  • Offers that seem “too good to be true” – like eliminating debt for pennies on the dollar without consequences
  • Companies that ask you to redirect payments to them instead of the creditor
  • Debt relief programs that hurt your credit without your knowledge
  • Firms that don’t explain your rights and all potential outcomes

Protect yourself by researching companies thoroughly, reading contracts closely, consulting with a nonprofit credit counselor, and avoiding any option that feels misleading or dishonest.

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