What Happens If I Don’t Pay My Debt?

No one wants to fall behind on their bill payments, but sometimes financial hardships make it unavoidable. 

Whether you're dealing with credit cards, personal loans, a mortgage, or student loans, it’s important to contact your lender as soon as possible, so you can make arrangements and avoid damage to your credit score and finances.

. . .

What Happens If I Don’t Pay My Credit Card Debt?

The first thing that will happen if you don't pay your credit card bill is you’ll incur a late fee and likely lose any promotional offers you have going. 

For example, if you are in an introductory period with a 0% APR, that balance will likely begin accruing interest. 

Beyond that, you’ll be faced with harsher penalties:

• After 30 days past due, your nonpayment will be reported to the credit bureaus, affecting your credit score. You will continue to be assessed a late fee for each missed due date, and interest will continue to accrue. 
• Between 60 and 180 days, your interest rate may increase. The credit card company will likely contact you to arrange payment — if you still don’t pay, they'll close your account. 

Eventually, your account will likely be sold to collections, and you may also be sued — which may result in your wages being garnished or even a lien on your property. 

READ MORE: How Do Credit Cards Work?

What Happens If I Don’t Pay My Personal Loan?

When your personal loan payment is late, you will likely be charged a late fee. 

But eventually, harsher penalties will come into play: 

• After 30 days past due, the late payment will be reported to the credit bureaus. The lender will likely contact you and you’ll be charged late fees for each missed due date. 
• Between 90 and 120 days past due, your account will be considered in default, which will have a serious impact on your credit. 
• After 120 days, it's not uncommon for the debt to be sold to a collection agency. 

Collection agencies can be ruthless in their attempts to collect, which could include bringing a lawsuit against you. This lawsuit could result in wage garnishment.

RELATED: Is Debt Consolidation Right for You?

What Happens If I Stop Paying My Mortgage?

Not paying your mortgage can lead to serious consequences, including the loss of your home. 

If you want to avoid foreclosure, take steps before you begin missing payments, such as refinancing the loan or speaking to the lender about any programs they have to assist in times of financial difficulty. 

Here’s what happens at each stage of nonpayment:

• Between 1 and 30 days past due, you may receive a late payment fee. But some lenders allow for a grace period before assessing the fee. 
• After 30 days past due, you will see more serious consequences. The lender can actually demand the entire outstanding balance. 
• After 120 days late, foreclosure processes can begin, with serious consequences on your credit and your life.

It's important to stay in contact with your lender and work to find a solution before reaching the foreclosure stage. Lenders may offer forbearance or loan modifications to avoid foreclosure. 

You can also seek assistance from the Department of Housing and Urban Development (HUD). 

READ MORE: How To Lower Your Monthly Mortgage Payment

What Happens If I Don’t Pay My Student Loans?

The process for federal student loans starts immediately: 

• Just 1 day after the due date, your payment is considered late and you'll be charged a late fee of up to 6% of the monthly payment. 
• After 90 days, it is reported to the credit bureaus. 
• After 270 days, it is considered in default, which will further damage your credit. Default also causes the entire loan amount to become due at once. 

Once the loan is in default, it is no longer eligible for deferment or forbearance. The government can also take you to court, which may lead to garnishing your wages and intercepting your tax refunds. They can even garnish Social Security payments. 

Defaulting on a private student loan may work differently. 

Private student loan companies may hire debt collection agencies to collect the debt. They can also sue you and garnish your wages, but won't be able to garnish Social Security payments or intercept your tax returns. 

RELATED: How To Start Paying Your Student Loans Back

What Happens If I Don’t Pay a Car Loan?

The first time your payment is missed, you will likely incur a late fee. But if it is 60 to 90 days late, your car may be repossessed. 

Late payments will also be reported to the credit bureaus, negatively affecting your credit. You may also be charged a repossession fee. 

Unfortunately, you are not off the hook just because the car was repossessed. The lender will attempt to sell the car and will apply the sales price to the balance of the loan. 

If the loan is not paid off at this point, you will be responsible for the balance.

FAQs

Can you go to jail for not paying debt?

No, you can't go to jail for not paying your debts. Generally, the worst that can happen is ruined credit and wage garnishments. 

If the loan is secured by an asset such as a house or car, then the asset will be seized by the bank, and you will lose access to it. 

Can student loans go to collections?

Yes, student loans can go to collections. If you default on your student loans you can be sued, and your wages can be garnished. 

If they are federal student loans, your Social Security payments and tax returns can also be garnished. 

How long can you go without paying your mortgage?

Not long. Laws vary by state, but in general, banks typically wait 120 days before they begin foreclosure proceedings. 

Once foreclosure is underway, it can take between a few months and a few years to complete. 

TL;DR: Failure to Pay Debt

If you are having trouble paying a loan, contact the company as soon as possible to make alternative arrangements. Most lenders are willing to work with you, as it's expensive to collect a debt and they want to avoid it almost as much as you do. 

In general, late payments on unsecured loans incur late fees and are reported to the credit bureau after they are 30 days past due. Eventually, the debt will be sold to collections. Legal action may result in wage garnishments. 

If the debt is secured, such as a mortgage or car loan, the bank may repossess the asset. Banks can begin foreclosure proceedings after 120 days, and cars can be repossessed even sooner.  

For tips on managing your money so you can be debt-free, check out these episodes of the Erika Taught Me podcast:

• Money & Investing Pitfalls to Avoid
• Get Past Your Money Mistakes
• How To Budget for Beginners

. . .