What Happens If You Stop Paying Your Debt

Maybe you’ve lost your job. Maybe medical bills piled up. Maybe you’re just overwhelmed and wondering what would actually happen if you stopped paying. Whatever the reason, it helps to know what the process looks like, step by step. Not as a scare tactic, but so you can make informed decisions about what to do next.

Here’s the realistic timeline of what happens when you stop making payments on your debt.

Days 1-29: Grace Period

For most debts, nothing dramatic happens the day after you miss a payment. Many creditors have a grace period, and some won’t even report the missed payment to credit bureaus if you pay within 30 days.

What happens:

• You may be charged a late fee (typically $25-$40 for credit cards)
• Your creditor may send a reminder email, text, or letter
• Your credit score is unaffected if you pay before the 30-day mark
• Any promotional interest rates (like 0% APR offers) may be voided

What to do: If you can scrape together the minimum payment within this window, do it. This is the cheapest and least consequential stage to catch up.

30 Days Late: The First Credit Hit

This is when things start to matter. Once you’re 30 days past due, your creditor will almost certainly report the late payment to the three major credit bureaus (Equifax, Experian, TransUnion).

What happens:

• Your credit score drops. A single 30-day late payment can knock 60-110 points off a good credit score.
• The late payment stays on your credit report for 7 years, though its impact fades over time.
• You’ll get more calls and letters from your creditor.
• Additional late fees accrue.

Credit score impact by starting score:

• 780+ score: expect a drop of 90-110 points
• 680 score: expect a drop of 60-80 points
• The higher your score, the harder you fall

60 Days Late: Penalty Rates Kick In

At 60 days, your creditor is taking your missed payments seriously. For credit cards specifically, this is when things get more expensive.

What happens:

• Credit card issuers can impose a penalty APR, often 29.99%, on your existing balance and new purchases
• A second late payment is reported to credit bureaus, further damaging your score
• Collection calls become more frequent
• Your creditor may reduce your credit limit or close your account

Important: Under the CARD Act, a penalty APR triggered by late payments must be reviewed after 6 months. If you bring the account current, the issuer must consider restoring your original rate. But they’re not required to do so.

90 Days Late: Serious Default Territory

Three months of missed payments signals to creditors that you’re unlikely to pay voluntarily. The tone of communication shifts from “friendly reminder” to “we need to talk about this.”

What happens:

• Your credit score takes another significant hit
• Your account may be flagged as “seriously delinquent”
• Some creditors will begin discussing your account with their internal collections department
• You may receive letters about potential consequences (account closure, legal action)
• For installment loans, the full remaining balance may be “accelerated,” meaning the entire amount becomes due immediately

120-180 Days Late: Charge-Off

Between 120 and 180 days (the exact timing depends on the creditor and type of debt), your creditor will likely charge off your debt. This is an accounting term that means the creditor writes off your balance as a loss.

What happens:

• A charge-off appears on your credit report, which is one of the most damaging marks possible
• The charge-off stays on your credit report for 7 years from the date of the first missed payment
• You still owe the money. A charge-off is not forgiveness. It’s the creditor acknowledging they don’t expect to collect directly.
• Your account will likely be sold to a collection agency or assigned to a third-party collector

What a charge-off does NOT mean:

• It doesn’t mean the debt is gone
• It doesn’t mean you can’t be sued
• It doesn’t mean the statute of limitations has started (that depends on your state and the type of debt)

Collections: What Happens Next

Once your debt is in collections, a third-party company takes over the task of getting you to pay. Collection agencies buy debts for pennies on the dollar (typically 4-10 cents per dollar of face value) and then try to collect the full amount from you.

What happens:

• The collection agency may report a new collection account on your credit report
• You’ll receive calls, letters, and possibly emails from the collector
• The collector may offer a settlement (paying less than the full amount)
• You have rights under the Fair Debt Collection Practices Act (FDCPA)

Your rights in collections:

• Collectors cannot call before 8am or after 9pm in your time zone
• They cannot threaten violence, use obscene language, or harass you
• They cannot call you at work if you tell them your employer doesn’t allow it
• They must stop calling if you send a written “cease and desist” letter (though this doesn’t erase the debt)
• They must validate the debt in writing if you request it within 30 days of their first contact
• They cannot misrepresent the amount you owe or falsely claim to be attorneys or government officials

Lawsuits and Judgments

If a creditor or collection agency decides to sue you for the debt, you’ll receive a court summons. This is more common than people think, especially for larger balances.

What happens:

• You’ll be served with a lawsuit (usually for debts over $1,000-$3,000, though there’s no minimum)
• You should respond. Ignoring a lawsuit almost guarantees a default judgment against you.
• If the court rules against you (or you don’t show up), the creditor gets a judgment
• A judgment can enable wage garnishment, bank account levies, and property liens

Wage garnishment limits:

• Federal law caps garnishment at 25% of your disposable earnings, or the amount by which your weekly earnings exceed 30 times the federal minimum wage, whichever is less
• Some states have lower caps or prohibit wage garnishment for certain types of debt
• Social Security, disability benefits, and certain other income types have additional protections

How Different Types of Debt Play Out

Not all debts follow the same path. Here’s how the consequences differ:

Credit Card Debt

• Unsecured, so the creditor can’t repossess anything
• Most commonly ends up in collections and potential lawsuits
• Settlement is often possible at 40-60% of the balance

Auto Loans

• Secured by your vehicle
• The lender can repossess your car, sometimes without warning (depending on state law)
• If the car is sold for less than you owe, you’re responsible for the difference (called a deficiency balance)
• Repossession typically happens after 60-90 days of missed payments

Mortgage

• Secured by your home
• Foreclosure timelines vary dramatically by state (from a few months to over a year)
• Federal law requires servicers to offer loss mitigation options before foreclosure
• Many states have mandatory mediation programs

Student Loans (Federal)

• No statute of limitations
• The government can garnish wages, seize tax refunds, and offset Social Security without a court order
• Income-driven repayment plans and deferment/forbearance options exist specifically to avoid default
• Default happens after 270 days of non-payment

Medical Debt

• Often handled differently by credit bureaus (there’s typically a waiting period before it’s reported)
• Many hospitals and providers have charity care programs and hardship programs
• Medical debt works differently than other types in terms of credit reporting

What You Can Do Before Things Escalate

If you’re struggling to make payments, there are steps you can take at every stage:

Before you miss a payment:

• Call your creditor and ask about hardship programs
• Look into balance transfer options to lower your interest rate
• Review your budget for expenses you can temporarily cut
• Consider a debt management plan through a nonprofit credit counselor

After you’ve missed payments:

• Still call your creditor. Many will work with you even after missed payments.
• Get everything in writing before agreeing to any payment arrangement
• Know your rights before engaging with collection agencies
• If you’re sued, respond to the lawsuit and consider consulting a legal aid attorney

If you’re deeply underwater:

• A debt settlement approach may make sense for some debts
• Consult with a bankruptcy attorney about your options (many offer free consultations)
• Understand that bankruptcy, while serious, exists specifically to give people a path forward when debts become unmanageable

Frequently Asked Questions

Will my creditor sue me over a small balance?

It depends. Lawsuits cost money to file, so many creditors won’t sue for balances under $1,000-$3,000. But there’s no guarantee. Some collection agencies specialize in filing high volumes of small-claims lawsuits. The amount, your state’s laws, and the creditor’s policies all factor in.

Can I go to jail for not paying debt?

No. There are no debtors’ prisons in the United States. You cannot be arrested for failing to pay credit card debt, medical debt, or other consumer debts. However, you can face legal consequences for ignoring a court order related to a debt lawsuit (like failing to appear for a court-ordered debtor’s examination). That’s a contempt of court issue, not a debt issue.

Does the debt ever just go away?

Every state has a statute of limitations on debt, after which a creditor can no longer sue you to collect. This ranges from 3 to 10 years depending on your state and the type of debt. However, the debt itself doesn’t disappear. Collectors can still ask you to pay. And making a payment or even acknowledging the debt in writing can restart the clock in some states.

How fast can I rebuild my credit after default?

It depends on how severe the damage is. A single 30-day late payment may recover within 12-18 months of consistent on-time payments. A charge-off or collection takes longer, but its impact on your score diminishes each year. Most negative marks fall off your credit report after 7 years. People who focus on building positive credit history (secured cards, on-time payments) after a default often see meaningful improvement within 1-2 years.

Should I just stop paying and settle later?

This is a strategy some people use intentionally, but it comes with real risks: credit damage, potential lawsuits, and no guarantee that a settlement offer will materialize. If you’re considering debt settlement, it’s worth talking to a nonprofit credit counselor first to understand all your options. The right path depends on your total debt, income, and which types of debt you’re dealing with.