Can you stop credit card payments?

Credit cards may seem like the easiest and fastest solutions to deal with unexpected expenses. But over time, they can quickly turn from an asset to a liability.

If you’re having trouble making the minimum payments on your credit cards, you’re not alone. In fact, 9.1 percent of credit card balances went delinquent in the past year, according to the Federal Reserve Bank of New York.

If you find yourself in this position, there are a few options you can do to stop those payments and buy yourself some breathing room.

Credit card tolerance

Some credit card companies offer forbearance programs, which can stop your payments, possibly without affecting your credit (although this depends on how the creditor reports it to the credit bureaus). Often they are limited to a period of 90 days.

These programs may also waive late fees or even temporarily lower your interest rate — but availability and waiver options will depend on the lender. So your balance is likely to increase during this time.

Eligibility for forbearance may depend on financial hardship. For example, if you have recently suffered a job loss and can provide documentation of this, your application for forbearance may be approved. The best first step to understanding your options here is to call your credit card company.

Bankruptcy

If you file for bankruptcy, it’s usually recommended that you stop making credit card payments. However, this is a radical option because bankruptcy has a major impact on your credit for the next seven to 10 years and can lead to your cards being cancelled.

That’s why bankruptcy is generally only reserved for those experiencing serious financial difficulties. This can include problems making credit card payments as well as paying for basic necessities.

It also costs money to file for bankruptcy and see a credit counselor from an approved provider. You may also want to consult a lawyer, which may have its own costs. If you want to go that route, however, there are two filing options you may want to consider.

Data source: uscourts.gov

What about debt settlement?

Debt settlement programs usually involve a private company contacting your various creditors to negotiate your debt with them. During this time, however, the debt settlement company may require you to begin setting aside cash in an account to be paid if the settlement is successful.

There are a few other downsides you should be aware of here:

• You usually have to pay the debt settlement company to do this for you.
• Settlement is not guaranteed and would result in a lump sum payment requirement at best.
• Your credit card company can sue you if you stop making payments while a debt settlement company tries to negotiate.
• Any successful settlement could be taxed as income.

In other words, it can be extremely risky to go this route. If you are in a precarious financial position, it is a good idea to contact a qualified credit counselor to understand your options.

Moving forward

Once you’re on your way back to a better financial position, it can be tempting to cancel some of your credit cards to avoid the option of going into more debt. But you should be careful here; canceling cards can have a negative impact on your credit because it could mean that any remaining debt you have becomes a larger proportion of your available credit. It can also shorten your credit history.

It can be a long process to build good credit. But when you need it, a high credit score can help you take positive steps toward big financial goals and save money on interest when you take out loans.

It can also help you access other financial resources, such as balance transfer cards, that can help you save money on debt in the future. (Check out our list of the best balance transfer cards to learn more about this option.)

That said, if you know that having an extra card open will have a negative impact on your finances, canceling it may be the right call. Just know the potential consequences of this so you can take other steps to ensure you don’t close yourself off from other financial opportunities.