What Happens If You Stop Paying Your Bills?

Life has a way of throwing unexpected curveballs. Financial hardship can strain your budget. You want to pay all your bills, and there's only so much money to go around. So you might have to make some choices about what gets paid now and what can wait until later. 

You have more control over your financial situation than you think. There are multiple pathways to a better financial future. The key is finding out what tools are available to you (and how to use them). 

What happens when you stop paying your bills? Missed payments can lead to late fees, interest charges, and collection calls or letters. Your credit standing is likely to suffer, and you may even be sued for unpaid debt. A debt lawsuit could result in wage garnishments, liens, or a creditor taking money from your bank account.

Learn more about what could happen if you fall behind on bills. 

Immediate Consequences of Missed Payments

If you miss a bill payment, a late fee is usually the first consequence. Billers decide when and how quickly to tack on a late fee, and how much to charge. 

For example, utility companies may not charge a late fee until you're 15 to 30 days past your original due date. Credit card companies, on the other hand, may add a late fee to your account immediately.

Late or missed credit card payments can also trigger a penalty APR. That means the interest rate you pay on your card balance goes up. For instance, your credit card company might raise your rate from 18.99% to 29.99%. That could make a big difference in how much it costs you to pay off the debt. 

Long-Term Impact on Your Credit and Finances

Once you're 30 to 90 days behind on bills, you can typically expect collection efforts to start. Your creditor, or a debt collector they assign your account to, may call you or send letters to ask for payment. 

If you don't respond, creditors can go a step further and sue you for unpaid debt. 

What if the creditor wins? They can ask the judge to:

• Garnish your wages to pay the debt

• Direct your bank to pull money from your bank account to pay the debt

• Put a lien on your home or other property you own until the debt is paid

Wage garnishments, bank account levies, and liens don't go away until you pay. And in the middle of all of this, your credit score suffers. 

Lawsuit judgments don’t show up on credit reports, but late payments do. Payment history influences your FICO credit score the most. These are the scores 90% of top lenders use for credit decisions. 

Now, why is that a big deal? 

A low credit score could make it harder for you to:

• Get approved for loans and credit cards, or for low interest rates

• Obtain utility or cell phone services in your name without a large deposit

• Get approved for a rental lease or get a mortgage to buy a home

• Be hired for certain jobs

You can recover from a low credit score, though it does take time and patience to do it. 

What to Do If You Can't Afford to Pay Your Bills

If you can't pay bills because of financial hardship, take a deep breath. It's a scary situation, and the best thing you can do is to stay calm and remember that you have options. 

Here are some ideas for how you can handle a money crunch.

• Reach out to your creditors. You might be tempted to avoid the bills, which is understandable. Instead, be proactive and call up your creditors to discuss your situation. They may be able to offer temporary solutions to help you get through a tough time. 

• Prioritize and reduce expenses. Some bills are more important than others. You need to pay your rent or mortgage so you have a place to live, for example. Go through your bills and decide which ones take priority. Make sure those are paid first, then look at how much money you have left to cover other bills.

• Look for help. Government and nonprofit programs might be able to help you pay bills when money is scarce. For example, you might be able to get food assistance or help with your light bill. You can use 211.org or FindHelp.org to search for programs where you live. 

No government program helps with credit card debt. Credit card companies may offer hardship programs to lessen the burden of making payments during a hardship. Call up your creditors to find out what's available. 

Alternatives to Missing Payments

If credit card payments or medical bills are a large chunk of your budget, debt relief can help. Debt relief creates some financial breathing room when you need it. 

The main types of debt relief include:

• Debt management: Debt management is a structured plan to pay off your debts. You make one payment to a credit counselor; the counselor distributes the money to your creditors. You might need a minimum amount of debt to enroll in a debt management plan. 

• Debt consolidation: When you consolidate debt, you pay it off with a personal loan or a home equity loan. That means fewer debt payments to make each month, since you just have the loan to pay. 

• Debt settlement: Debt settlement lets you pay off debt for less than what you owe. You might try to resolve debt if you mostly owe credit cards and you can’t afford to repay it fully.  

A debt expert can help you figure out which path makes the most sense to follow. 

Why Would Anyone Miss Payments Intentionally?

Many people who enroll in a debt settlement program stop paying their debts. To be clear, stopping payments isn’t a requirement for debt settlement, and no one should tell you that you have to do it. 

In debt settlement, the goal is to offer your creditor less than you owe and ask them to accept it as payment in full. The remaining balance is forgiven. 

Creditors want to be repaid. But sometimes, they’re willing to forgive part of your debt if it’s clear that you’re experiencing financial hardship. Accepting a partial payment may be your creditor’s best chance of recovering any of the money you owe.

It’s harder to save money to offer your creditors if you’re also keeping up with your debt payments. For this reason, most people pursuing debt settlement stop making payments toward the debts they want to settle. Also, stopping payments sends a clear distress signal to your creditors. They may be less inclined to forgive part of your debt if you’re keeping up with your payments.

How to Recover From Missed Payments

Try to pay as soon as possible when you miss a bill payment. That can minimize some of the negative consequences, though you may not be able to avoid a late fee. If your bills went unpaid for a longer period, you may have to do a little more work to bounce back. 

The most impactful thing you can do for your credit standing is to pay bills on time. That can help your credit score recover if you lost points because of missed payments. 

You can also begin to rebuild credit strategically. For example, you might get a small personal loan and pay it back. If you have a credit card, you could charge a small amount to it each month and pay the bill in full. 

Making a budget can bring it all together. Your budget is a plan for how you'll spend money each month. You can make a budget on paper, with a spreadsheet, or through a budget app. A budget lets you see where your money goes and keep up with bill due dates so nothing falls through the cracks. 

Planning Ahead to Avoid Missed Bills in the Future

It's better to avoid missed payments if you can. Here are a few final tips to help you stay ahead of the bill payment game and stay on track financially. 

• Put your credit cards away and spend with your debit card or cash instead.

• Review your expenses monthly and trim any non-essentials.

• Continue to prioritize paying your most important bills first.

• Schedule automatic bill payments on or before your due dates.

• Set up due date reminders if you can't pay bills automatically.

• Open a savings account and schedule a small transfer into it each payday to build your rainy-day emergency fund.

A missed bill payment isn't the end of the world. If you get behind, focus on what you can do to get caught up and move forward.