Here's what happens if you don’t pay off your credit card debt

What happens when you don't pay off your debt?
What happens when you don't pay off your debt?

Americans have more credit card debt than ever before. According to the Federal Reserve, U.S. households collectively hold over a trillion dollars in credit card debt. The average American family owes $8,377.

"America's credit card balances have never been higher," Matt Schulz,'s senior industry analyst tells CNBC Make It, "but there's no reason to think they won't just keep climbing."

If you're one of the hundreds of millions of Americans with outstanding credit card debt, you may be tempted to ignore your credit card bills. People like James Altucher may even tell you to never pay off your credit card debt.

But after working as both a debt collector and a credit counselor, Bruce McClary says that the best way to face credit card debt is head-on. Today McClary is vice president of communications for the National Foundation for Credit Counseling, a nonprofit organization that provides free credit counseling services.

Here is exactly what will happen if you don't pay off your credit card debt, and why you should make paying it off a top priority:

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 Before you miss a payment

"If you think you are not going to be able to make a payment on time, the best course of action is to reach out and be proactive," says McClary. "Time is not your friend in this situation, it is your enemy."

When contacting a creditor, McClary says borrowers should mention four things: "Let them know that you might miss a payment, let them know the circumstances, ask them if there's anything that you can do to avoid having this show up on your credit report and ask what you can do to avoid any late fees or any penalties that might result from missing a payment."

Being proactive can pay off big-time, because creditors are more likely to work with you if you start communicating early. And many creditors have policies to help borrowers who are worried about falling behind.

"Some creditors offer skip-a-payment-plans or interest-only-payment-plans to help you buy some time," he says. "Those things can keep the account from showing up as delinquent on your credit report and they can also help you avoid costly penalties."

30 days late

When you begin to miss payments without informing your creditors, you start to face increasingly serious consequences. "If you happen to be in a situation where you weren't proactive, then the tables turn and the creditor reaches out to you," says McClary.

If you are 30 days late on a payment, your creditor will likely contact you via phone, letter or email. McClary's advice is to face these communications head-on instead of ignoring them: "Do not duck the call or letter or email. Open it, read it, respond."

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"Avoiding their communication at this stage doesn't make it go away. It only makes things worse."

Responding as soon as possible will make creditors more sympathetic to your situation. By working with your creditor, instead of hiding from them, you're more likely to find some leniency. "It is a very soft contact at that point. They are not so demanding and they are still open to helping you find a way that you can affordably get up to date. Things are still fixable at that stage," he says.

60 days late

After missing a second payment, you begin to face some of the financial consequences of not paying off your credit card debt.

Your interest rate will likely increase to the penalty interest rate agreed upon in your contract. The increase can be dramatic. "I have seen interest rates go from 8 percent to 20 percent to 29 percent and even 36 percent," says McClary.

You will also be charged a late fee, typically between $20 and $30, and your credit score will be negatively impacted. Over time, these late fees can add up to be a serious burden and a low credit score can make it difficult for you to achieve your financial goals, like owning a house or buying a car.

90 days late

If you miss a third payment, your account will likely be shut down completely and you will be expected to pay the balance in full. Most creditors will sell your debt to a third-party collection agency. These agencies often pursue the harshest possible legal actions, which vary from state to state.

In some states, you can be sued. In others, a lien can be placed on your bank account. But nowhere in the country can you be imprisoned for missing a credit card payment. "You should never worry about going to a debtors' prison," says McClary. "What you do have to worry about is the mounting cost and the financial damage."

Time is not your friend in this situation, it is your enemy.
Bruce McClary
National Foundation for Credit Counseling (NFCC)

Depending on the state law, creditors can collect funds after a person has died. "Creditors can put a lien on your estate and if they are successful in doing so when you have your estate sale, there will be less to pass on to your heirs."

Fortunately, there are free and affordable resources available to help you manage credit card debt. "All isn't lost if you end up in a situation where you are falling behind if you are 30, 60 or even 90 days past due," explains McClary. "The point is how soon you reach out to get help. Nonprofit credit counseling agencies like the NFCC are good resources to turn to."

By being proactive, communicating clearly and reaching out to nonprofit credit counseling agencies, you can make sure that credit card debt doesn't get the best of you.

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