By: Ciele Edward

If financial struggles force you to choose between paying your credit card bills or paying for necessities, you’re likely to let your obligation to your credit card company fall to the wayside. Before you do so, however, you should be aware that your debt won’t simply vanish as soon as the telephone calls and letters from the credit card company stop. In fact, defaulting on your credit card bills could cost you far more in the long run than finding a way to make your minimum payment until you’re back on your feet financially

Step One: Added Fees and Interest

Although the CARD Act prevents credit card companies from being able to raise your interest rate and charge you fees if your payment arrives a few days late, it doesn’t protect you from these consequences should you default on your credit card debt. Once your payment is a full 60 days late, your credit card provider will levy late fees against your account in addition to increasing your interest rate on the existing balance. This can cause your credit card debt to quickly escalate out of control.

Step Two: Credit Damage

Some credit card companies report consumer accounts to the credit bureaus every 30 days. Others, such as American Express, report consumer accounts every 60 days. If you haven’t paid your bill, however, you can expect this fact to show up on your credit report. The Fair Isaac Corporation notes that your payment history is a crucial factor in determining your credit score. One late payment can cause your credit score to drop 75 to 100 points. The longer your payment is late, the worse your credit score suffers.

Step Three: The Charge-Off

After 180 days pass without you making a single payment to your credit card company, it will sell the debt to a collection agency for pennies on the dollar. Any excess losses will be written off as a tax loss for the company. Once the collection agency takes over ownership of the debt, it will add its own fees to the amount you already owe. Debt collectors will then begin calling you and sending you letters demanding immediate payment of the defaulted credit card debt. The collection agency will also add a collection account to your credit report. Provided the debt is over $100, it will be included in credit scoring calculations and damage your score even further.

Step Four: The Lawsuit

If your debt is high enough and the collection agency believes it has a good chance of collecting the debt, it will file a lawsuit against you in your local court. If you don’t have a good defense or don’t show up in court at all, the company will win a judgment for the full amount it claims that you owe, plus attorney fees and court costs. The judgment will