What happens if you don’t pay credit card bills?

If you don’t pay your credit card bill in Switzerland, three stages of escalation follow. First, there are reminders, then private debt collection agencies and a ZEK entry, and finally, there are legal consequences, which can lead to debt enforcement by the state.

Not paying credit card bills is an extremely unwise idea. If possible, at least use the installment facility and pay the minimum amount.

Please contact your credit card provider if you face serious payment difficulties. If you are already in debt, contact a debt counseling center today.

What are the escalation stages if a credit card bill is not paid?

The three stages of escalation for non-payment of a credit card bill are as follows.

1. Payment reminders and overdue notices
2. Engagement of a private debt collection agency and filing of a negative ZEK entry
3. Legal actions such as debt collection enforcement and wage garnishment

In the worst-case scenario, unpaid debts can lead to personal bankruptcy.

Stage 1: Payment reminders and overdue notices

If a credit card bill is not paid on time, the card company will send the cardholder an initial reminder. The first reminder is often designed as a friendly reminder and indicates that payment is overdue. Typically, a new deadline is set within which the payment should be made. Additional charges are sometimes incurred at this stage, but usually not yet.

If the cardholder ignores the first reminder and the set deadline passes without payment being received, further reminders will follow. The additional costs increase with each additional reminder. The costs consist of reminder fees and interest on the overdue amount. Late payment interest is usually the same as the interest rate for the installment plan and often amounts to the maximum interest rate permitted by law.

The amount of the fees and interest varies depending on the credit card provider, but can quickly lead to a considerable increase in the original debt. At this stage, the cardholder must take action to avoid serious financial charges.

Stage 2: Private debt collection agency and ZEK entry

If the debt remains despite multiple reminders, the credit card company can hire a private debt collection agency to recover the outstanding amounts. The use of a debt collection agency leads to additional costs that are charged to the debtor. The costs consist of the actual collection fees and any additional late payment interest. Private debt collection agencies can take more intensive measures to collect the debt, such as more frequent attempts to contact the debtor by phone or post.

Persistent non-payment leads to a negative entry at credit reference agencies. In Switzerland, this is an entry called ZEK (Central Office for Credit Information). A negative entry with the ZEK has serious consequences for the debtor’s creditworthiness and makes it difficult to obtain loans in the future. It is important to note that loans include not only personal loans but also mortgages and deferred payments. A negative entry with a credit bureau remains on record for up to 5 years and can also negatively impact approval for leases and credit cards.

Stage 3: Legal action and debt enforcement

If all previous attempts to collect the outstanding amounts fail, the credit card company will take legal action. This usually involves filing a lawsuit with a civil court. The process begins with an official complaint filed against the debtor, leading to a court case.

The debtor is legally obliged to pay the outstanding amounts plus court and legal costs if the judgment is made in favor of the credit card company.

Debt enforcement proceedings are initiated if the debtor fails to settle the debt. The process begins with the competent debt collection office issuing a payment order. If the debtor ignores the payment order, measures such as wage garnishment or the sale of assets are taken. In the worst-case scenario, the debt spiral leads to personal bankruptcy, which must be filed for by the debtor.

What are the consequences of debt collection proceedings?

The consequences of debt collection proceedings include difficulties with lease agreements, financing, and numerous other contracts. The difficulties arise due to the entry in the debt collection register, even if the original debt has already been paid off. Entries in the debt collection register are retained for five years, unless special circumstances apply, such as illegality or authorization for deletion by the creditor. Debt collection proceedings have an extremely negative impact on creditworthiness. Even if the entry is not so severe that you can no longer obtain credit, a lower credit rating leads to significantly higher interest rates.

If you fail to pay your credit card debt to the point where debt enforcement happens, the total cost is much higher than it was at the start. In addition to the outstanding balance on the card, the following costs will be added: late fees, interest on overdue payments, collection agency fees, court and legal fees (both your own and those of the card issuer), and debt enforcement costs.

What to do if you can’t pay your credit card bill?

If you can’t pay your credit card bill, you should either use the installment payment option or stop spending immediately, reach out to a debt counseling service, and contact your credit card issuer. The sooner you act, the better you can minimize and mitigate the consequences.

How does the installment option work?

The installment option works by allowing you to pay only a certain portion of the bill and defer the rest. Card issuers may require repayment of 10% of the amount spent, for example. If you use the installment payment option, you won’t have any problems as long as you pay the required minimum amounts. 

It is better to pay the bill in full despite the installment option. The reason is that interest is charged on the outstanding amount. In Switzerland, this is generally between 9% and 12% per year, which is a lot! You can find the exact interest rate of your credit card in the general terms and conditions under “Annual interest rate”.

Where to get help with credit card debt?

In Switzerland, nonprofit debt counseling agencies, budget counseling services, Caritas, and cantonal or municipal agencies can help with credit card debt. These support services assist with budget planning, negotiations with creditors, payment reminders, debt collection, and debt enforcement proceedings. A good first point of contact for debt counseling is the free, anonymous telephone hotline of Caritas Debt Counseling: 0800 708 708.