What happens if you don’t pay off your credit card?


When used carefully, credit cards can be an effective tool for managing your finances. However, it’s easy to underestimate how much you’re spending and be faced with a hefty credit card bill at the end of the month. 

If you’ve felt the struggle of looming credit card payments, you’re not alone. As of September 2022, there are 13,173,498 credit card accounts circulating in Australia, with a national debt accruing interest of $17.7 billion.

Financial hardship is nothing new for many of us, but there are ways to minimise money struggles with careful financial planning and staying away from your credit limit. 

Let’s get to the following commonly asked questions:

  • What happens when you don’t pay off your credit cards? 
  • What should you do if you miss credit card payments?
  • Is it OK if I don't pay my credit card in full? 
  • How can you stop missed payments from hurting your credit? 

Q1. What happens when you don't pay off your credit cards?

If you don’t pay off your balance or make the minimum payment set by your card issuer, you could be faced with various repercussions. The first step will be a letter from your card companies, as well as a late payment fee. 

If you still don’t make a payment, you might see: 

  • An increase in your interest rates. If you can’t pay your card debt by the end of the statement period, your outstanding credit balance will be charged a significant amount of interest. If you don’t pay, the interest rates will keep going up, and your annual fees will skyrocket.  
  • A decrease in your credit score. If you avoid paying your debts then your credit score will be seriously impacted and stay on your record for years to come. This could make life moments, like buying a home or a car, far more difficult to achieve. 
  • The closure of your account. If your credit card debt becomes unmanageable, your bank account could be closed. Credit card issuers will only make this decision after 180 days of not paying your credit card balance. Your closing balance will remain on your personal finance records and could be passed to debt collectors to rectify. 
  • Debt collectors could visit you. If you’re still struggling to pay off your credit after multiple warnings, your credit card company may send a debt collector to settle what’s owed. We’d recommend seeking financial advice before you reach this stage. 

Q2. What should you do if you miss credit card payments?

If you can’t make your minimum repayments, don’t bury your head in the sand. Here are some steps to retake control of your credit card statement and improve your credit utilization ratio. 

  • Contact your credit card company. Communication is key when dealing with fees and charges. If you’re struggling to pay your card balances, get in contact with your credit card issuer so you can chat through your options. 
  • Pay the minimum payment as soon as possible. If paying your credit card entirely isn’t an option, make sure to pay the minimum amount as soon as you can to avoid more fees. 
  • Suggest hardship support. If the minimum payment is too difficult, it may be best to consider a hardship variation. An option for all credit card holders, it’s a legal process where you can ask your credit card issuer to alter the terms of your agreement. 

Q3. Is it OK if I don’t pay my credit card in full?

Yes, and no. It depends on how much interest you're willing to pay on top of your monthly payments since credit cards charge interest on all unpaid balances. This can get very costly, especially if your balance is high. While in the short term it’s not essential to pay off your full balance, we recommend paying it, in the long run, to avoid losing significant money that you could add to your savings accounts. Use a loan calculator to understand your loan rates and how much you’ll owe at the end of your statement. 

Q4. How can you stop missed payments from hurting your credit?

Credit scoring takes into account all missed payments, and the only way to remove a missed payment from your record is if it was incorrect in the first place. If this isn’t the case, then missed payments will stay on your credit report for seven years. 

However, it’s not the end of the world. Missing only a few payments won’t be detrimental to your score, so keep on top of your bills as well as you can. We recommend regularly checking your online banking apps and credit reports, as well as setting up a direct debit every month so you don’t forget to pay your credit card off at the end of your statement period. 

Summing up

Making a late payment isn’t the end of the world, but consistently not paying off credit card bills can get costly, especially since credit card companies charge high interest on unpaid debts. It can also have a negative impact on your credit score, which follow you around for years to come. 

Contact your credit card company as soon as you’re aware you can’t make a payment and chat through your options. There are various debt consolidation options available designed for saving money. If you’re struggling with money stress, read our tips for easing money anxiety

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Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.

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