Failing to pay your bills on time can have serious financial consequences. From damaged credit scores to loss of services, missed payments should be avoided whenever possible. This article will explain what can happen if you don’t pay a bill, how to minimize the impact and tips for getting back on track financially.
Consequences of Not Paying Bills
There are a variety of negative outcomes that can occur when bills go unpaid:
Service Disconnection
Many services like cell phones, internet, utilities, and cable/satellite can be disconnected if you fall too far behind on payments. Having any of these disconnected is extremely inconvenient and often costly to get reconnected. For essential utilities like electricity, gas, and water, service shutoffs can seriously impact your daily life.
Credit Score Damage
Late payments, missed payments, and services sent to collections are all reported to the credit bureaus This damages your credit score, sometimes significantly. A lower credit score makes it harder to get approved for loans, credit cards, rentals, and more Poor credit also leads to higher interest rates when you are approved.
Inability To Get New Student Loans
If you are behind on federal student loan payments, you can be blocked from taking out additional federal student loans for education Since these loans have benefits like income-based repayment options, losing access limits your funding options for college or graduate school
Lawsuits and Wage Garnishment
After accounts become severely delinquent, creditors can sue you to recover the unpaid debt. If they win a judgement, your wages can be garnished where a portion is automatically deducted from each paycheck. Creditors can also seize money from bank accounts or put liens on your properties.
Repossession
For secured debts like car loans or mortgages, the creditor can repossess the home, car, or other collateral if you default on payments. Having property forcibly repossessed is damaging financially, emotionally, and can destroy your credit scores.
Compounding Fees and Interest
Many bills assess late fees for missed payments, causing your balance to increase. Unpaid credit cards often shift to a penalty APR which is much higher interest. These fees and extra interest cause balances to snowball quickly.
How To Minimize Damage From Unpaid Bills
If you are struggling to pay bills, take action quickly to prevent or minimize the fallout:
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Contact all creditors right away – Discuss options like reduced/deferred payments, payment plans, changing due dates, or waiving fees.
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Prioritize essential utilities – Keep electricity, water, gas on by paying at least the minimums. Loss of these severely impacts daily life.
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Pay down credit cards – If extra funds are available, pay down cards aggressively, focusing on those with the highest rates.
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Avoid additional spending – Don’t take on new loans or debt until you have a plan to pay current bills. Adding more debt will compound the problems.
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Seek assistance if needed – Nonprofits like United Way may be able to provide rent, utility, or other bill assistance if you are struggling.
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Consider debt management help – Financial counselors can help negotiate with creditors, consolidate debt, and create a repayment plan.
Tips for Getting Back on Track Financially
If you’ve fallen behind, focus on these areas to help get your finances more stable long-term:
Budget Carefully
Create a written budget that allocates every dollar earned to essential expenses, debt payments, savings, etc. Stick closely to the budget to align spending with your actual financial situation.
Increase Your Income
Boost your income through steps like asking for a raise, finding a higher paying job, monetizing a hobby, or getting a part-time job. Increasing cash flow makes it easier to pay bills and debts.
Reduce Expenses
Look for areas to cut back on like eating out, subscriptions, entertainment, impulse purchases, and unused monthly memberships. Finding savings helps free up more money for bills.
Build an Emergency Fund
Save 3-6 months’ worth of living expenses in a savings account. Emergency funds prevent having to miss bill payments when unexpected expenses come up.
Pay Bills On Time
Set up autopay or reminders to avoid late payments in the future. Pay at least the minimums on time every month. Staying current protects your credit and prevents penalties.
Consolidate High Interest Debt
Credit cards and other debts with double digit interest rates can be consolidated through a personal loan or balance transfer card with a lower rate, reducing the amount that goes to interest each month.
Seek Professional Help
If you are still struggling with debt, consult a non-profit credit counseling agency or financial advisor. They can help manage payments, negotiate with creditors, create a debt payoff plan, and assist with money management.
What To Do If You Miss A Bill Payment
If you do miss a payment, take action quickly:
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Contact the creditor immediately and explain the situation. Discuss options to catch up or reduce/defer payments.
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If essential utilities like power are at risk of shutoff, check if financial assistance is available to help avoid disconnection.
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Prioritize catching up on secured debts like mortgages and auto loans where property/collateral is at risk.
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Pay down the max possible on cards/loans about to hit 30, 60, 90 days past due to minimize damage to your credit.
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For federal student loans, look into deferments or income-driven repayment options to avoid default status.
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If legal action is threatened, consult a nonprofit credit counselor or legal aid clinic for assistance protecting your rights.
The Bottom Line
Failing to pay bills can negatively impact your finances both short and long-term. Contact creditors immediately if you will miss a payment to discuss options and minimize consequences. With focus, budgeting, and planning, you can get back on track and avoid further missed payments down the road.
What You Should Know if You’re at Risk of Legal Action for Unpaid Debt
Finding out that your creditor has started a court action can be very stressful and scary – don’t postpone getting debt advice from a Licensed Insolvency Trustee. We can often stop the court process from happening and block an ongoing garnishment.
What Can Happen if You Stop Paying Your Debt?
If you stop making payments on your credit cards or other general consumer debts, your creditors will usually charge you a fee for defaulting on payments and start reporting those missing payments on your credit history. Remaining unpaid, your creditors may also do some, or all, of the following:
- Raise Your Interest Rate: Lenders often increase your interest rate after you’ve had a series of missed credit card (or similar) payments. Unfortunately, losing what was often a ‘preferred annual rate’ will make your account balance get even bigger, faster. This can be extremely stressful, especially if you’re already struggling to pay down your balance.
- Send Your Account to a Collection Agent: In-house collection departments may start contacting you and your account may later be sold to a third-party collection agency.
- An outside collection agency is normally engaged after three months of delinquency . Many people feel intimidated and overwhelmed at this stage, and collection calls or texts can be frequent. You may also receive upsetting letters threatening that collection methods will escalate even further.
- Take Money from Your Bank Account (“The Right of Offset”): If you have a bank account with the creditor you owe the debt to (or one of the bank’s affiliates), the lender may take money directly from your bank account for missed payments – without notice to you. This is called the ‘right of offset’ and frequently happens if you have a regular day-to-day bank account with the same bank with which you have the debt.
- Block or Cancel Services: You may lose access to the credit / account after a period of missed payments and the creditor may not be willing to reopen the account even if arrears are repaid in full.
- Start Legal Action: If a creditor is successful in taking court action against you, the following may happen once they have received a court judgment:
- Wage Garnishee: Your creditor may get permission to take money directly from your wages or other income. Accumulated interest, penalties and legal fees may also be tacked on to what you must repay.
- Asset Seizure: Your creditor might be allowed to place a lien on your home, or even outrightly take an asset such as a vehicle.
- Arrest Warrant: Your creditor may ask the court to issue a warrant for your arrest if you don’t appear as required at a court hearing, although this is rare.
Having legal action taken against you is understandably among the greatest fears for many people who are facing a debt problem. One piece of good news though, is that in general, arriving to an outcome like a judgment, wage garnishment, etc. usually takes some amount of time to complete and you will receive notice of the impending action. By reaching out to a Licensed Insolvency Trustee, most court actions for debt payments can be stopped or prevented from starting.
What Happens If You Don’t Pay Medical Bills?
FAQ
What happens when you don’t pay your bill?
What happens if you ignore bills?
What happens if you owe money and don’t pay?
What happens to unpaid bills?
What happens if I don’t pay my bill?
If you don’t pay your bill, the company will turn the information over to a collection agency. Once this happens, the collection agency will start by calling you.
What happens if you don’t pay a debt collection agency?
If you don’t pay a debt collector or collection agency, you’ll likely face increasing efforts to collect the debt via phone calls, letters, or even social media contact. Not paying a debt in collections will also hurt your credit score. If you don’t pay, the collection agency can sue you to try to collect the debt.
What happens if you don’t pay your debt?
The phone will start ringing, and the letters will start coming in a campaign to get you to pay. If you’re able to pay the debt or negotiate with the debt collector, then your debt problem will rather quickly disappear. If you can’t, you may find your stress levels rising – especially if you have secured debt.
Can you be jailed if you don’t pay your debt?
You can’t be jailed for failure to pay the debt. Despite this, some people are still finding themselves facing – and even serving – jail time for unpaid debt. According to the FTC, collection agencies buy debt for an average of 4 cents for every dollar of debt.
What happens if I miss a bill payment?
If you realize you’ve missed your bill payment, get it paid off as soon as possible – or at least make the minimum payment due. For a late payment you could anticipate possible consequences such as: Interest Charges: You will of course be charged interest on the balance on your credit card that wasn’t paid off before the due date.
What happens if I don’t pay my auction proceeds?
If the auction proceeds don’t cover your debt and the repossession costs, the lender can still come after you for the balance. That debt will probably go to a collection agency if you don’t pay. Any debt that is not secured by collateral is an unsecured debt. There is nothing that the creditor can seize from you if you fail to pay.