What happens if you don't pay credit card debt that's in collections?

Falling behind on credit card payments can be stressful, but it's a common issue that many cardholders face, especially now that credit card interest rates are sitting at a record high. And, if you fall too far behind, it can create a ripple effect, eventually leading to debt being handed over to a collection agency. Once your debt reaches collections, it can feel like you're stuck in an escalating situation with no clear resolution. The constant calls and letters from debt collectors can be overwhelming, and the idea of facing the debt head-on might seem daunting.

The consequences of having debt in collections can extend far beyond persistent phone calls and letters, too. Your credit score takes a significant hit, potentially dropping by 100 points or more. This negative mark can remain on your credit report for up to seven years, affecting your ability to secure loans, rent apartments or even land certain jobs. Debt collection agencies also have various legal tools at their disposal to recover the debt, and ignoring the debt will almost certainly lead to escalating challenges that can impact your financial future.

While ignoring the debt — and the collection efforts — might seem tempting, it often leads to more severe consequences that can impact your financial future. So, it's important to understand what those are and what your options are for tackling your debt.

Learn about your credit card debt relief options here.

What happens if you don't pay credit card debt that's in collections?

Refusing to pay debt in collections triggers a series of escalating consequences. Debt collection agencies typically start with frequent contact attempts via phone, mail and email. While there are laws, such as the Fair Debt Collection Practices Act (FDCPA), to protect you from harassment, the ongoing communication can still be stressful.

If these efforts fail, they may pursue legal action by filing a lawsuit. If they win a judgment, they gain powerful collection tools. For example, depending on the state you live in, wage garnishment could be possible, allowing the debt collector to take up to 25% of your disposable income directly from your paycheck. 

They can also freeze your bank accounts, making it impossible to access your funds until you address the debt. In some states, debt collectors may place liens on your property or force the sale of certain assets to satisfy the debt.

Other common consequences include:

• Credit score damage: A collection account is one of the most damaging items that can appear on your credit report. It can cause your credit score to plummet, making it harder to qualify for loans, credit cards or even rental agreements. The collection account can remain on your credit report for up to seven years from the date of the first missed payment, even if you eventually pay off the debt.
• Additional fees and interest: Collection agencies often add fees, interest or other charges to the original debt amount, increasing the total amount you owe. These extra costs can make it even more challenging to pay off the debt.

Find out how to start tackling your credit card debt today.

How to get rid of credit card debt in collections

Ignoring the debt won't make it disappear. Rather, it's important to understand your options and take proactive steps to address the situation. Several debt relief options exist for managing collection accounts, including:

• Debt forgiveness: Debt forgiveness (also referred to as debt settlement) involves negotiating with collectors to pay less than the full amount owed. Many debt collectors purchase debts for a fraction of their original value and may agree to lower what you owe by 30% to 50% of the original balance. 
• Debt management: Debt management plans, which are offered through credit counseling agencies, can help consolidate multiple collection accounts into a single monthly payment, often with reduced interest rates. These agencies also provide financial education and budgeting assistance.
• Bankruptcy: Bankruptcy, while generally a last resort, can provide a fresh start when you're too far in debt. Chapter 7 bankruptcy typically eliminates credit card debt entirely, while Chapter 13 creates a structured repayment plan. Both options immediately stop collection activities through an automatic stay.
• Debt validation: Debt validation offers another approach. Within 30 days of first contact, request written verification of the debt. Debt collectors must pause collection activities until they provide this documentation. If they cannot prove they own the debt or provide accurate records, it can weaken their collection ability.

The bottom line

Ignoring credit card debt in collections rarely solves the problem and often makes it worse. The impact on your credit score, the potential legal consequences and the ongoing stress can create long-lasting financial and personal challenges. So, rather than ignoring it, take proactive steps by understanding your rights and exploring available debt relief options. But it's important to act before debt collectors escalate to legal action. Whether through settlement negotiations, credit counseling or bankruptcy protection, addressing collection debt head-on typically leads to better outcomes than avoidance.