finance charges on credit cards

[bkfiler]

when you stop making payments lets say for an entire year what amounts and kinds of finance charges and fees are applied to the balance?

lets say on a $20K balance as an example.

do they all rack it up to 30% or 20% APR or stop adding it after awhile?

do they keep adding late fees even though account was closed?

guess they add attorney fees and collection fees too?

its been over two years since i made payments and cant recall how they apply these things.

thanks for the help

[pink_amulet]

They keep addeding interest until they close it out, at least in MY case. I had a credit card, and the limit was $400....however they kept adding on interest until it got to be over $700. My interest was only 9.9%. I stopped using the card it only had $320 on it. It over 6 months worth of fees. Now my CC was a rinky dinky one...I don't know how these BIG CC work.

pink_amulet

[Genenco]

Well, unless they did a charge off, then they have done this:

1. Late paying, interest goes up to max..About 30%

2. Late payment fees...Average $35 and up.

3. Once late payments hit limit, then it's late AND overlimit. So every month it's $75 and up.

Now they'll most likely give up and sell the debt. I have seen Cease and Desist letters which "3rd Party" collectors get and it says "I will ONLY deal with original creditor regarding this bill" which means it gets kicked back to the creditor and then either the cycle starts again, or they give up and let it ride the books...

I'm only guessing on the above, but after reading those letters, it's very plausable that this sceneario would be the result. After all, the original creditor gave up and sold the debt, but the 3rd party can't collect, so it gets kicked back and forth and back and forth. Sooner or later, someone gets tired...

[StaciMM]

It will vary.

Most creditors will charge late payment charges and overlimit charges (if applicable) for 6-9 months. During this time, the interest would have gone to the default rate. That will vary, but anywhere from 24%-30% is likely. After the creditor 'charges off' the account (tax term for them, you still owe the debt) they would normally stop charging the penalties but continue w/ interest.

Whether they ultimately sell the account or just have a 3rd party collection agency pursue it will not change the interest being charged-just determines who you have to deal with. (Note-if they sell the account, rather than having someone collect on their behalf, then the agency that bought the account becomes your creditor, so you would not have an option of dealing only with the original creditor. That only works if your OC still owns the account.)

In a years time, a $20,000 account could easily turn into $28,000. If that $20,000 is split over several accounts it can be worse (as each one would have late fees, etc. added.) It it were 5 accounts at $4000 each, the result after a year could top $32,000. 10 $2000 accounts could turn into $37,000.

(Since there are more late fees being added initially when you have more accounts, and those extra fees generate even more interest being added, it skyrockets more if you have more accounts.)

[StaciMM]

This only applies to 3rd party collectors, where you are dealing with a collection agency that does not own your account. (Not all creditors sell the accounts-some will let an agency handle it, and the agency keeps a % of any payments they collect.) If you're dealing with a 3rd party, then yes, you can send a C&D letter and the agency won't be able to do anything on the account, effectively sending it back to the original creditor who may then send it to another agency, pursue legal activity, sell the account, or simply do nothing for the time being.

If your account is sold, then the new company becomes your creditor. You cannot 'C&D' them and get the account returned to the original creditor. Even some companies that buy past due credit card accounts will then hire a collection agency to handle it. Bottom line-its good to find out the ownership status of your account, and a collection letter should indicate who the creditor is-so you'll know if you're dealing with a 3rd party or not.

Its a little like mortgages-it is very common to start out with one lender, but you have no choice if your loan is sold to another. You would then owe the new company.

I'm only guessing on the above, but after reading those letters, it's very plausable that this sceneario would be the result. After all, the original creditor gave up and sold the debt, but the 3rd party can't collect, so it gets kicked back and forth and back and forth. Sooner or later, someone gets tired...

[Genenco]

Thank you Staci, I knew there was something wrong with my thoughts

In any case, it's worth the mistake, as now I know what might occur instead of "Guessing" at things