Defaulting on your credit card is more than just missing a payment. If you’re considered to have subprime credit card delinquency, it means that you have not been paying back the balance on your credit card for several months. You can also face additional penalties and late fees that increase your total balance.
You may have missed credit card payments because of financial hardship and either your credit card company refused to work with you or you declined to contact them about your problem. Regardless of the reason why you missed payments, you will have to take on the consequences of failing to pay the debt that you owe.
What Are the Consequences of Defaulting on Your Credit Card Payments?
Usually, after you’ve not made payments in 6 months, a few things will happen. First, your credit card company will close your account so you can no longer use the card. This may happen before the 6-month point.
Your account will be reported to the three main credit bureaus and marked as being delinquent. This will be a black mark on your report for up to seven years. This will dramatically lower your credit score, making you ineligible for the best rates on home and auto loans. It will make it difficult to qualify for another credit card or store card.
The credit card company will also likely assume you’re not going to pay the debt, so they’ll write it off and sell it to a much more aggressive debt collection agency, which will pursue you for payment. These are a few of the consequences of defaulting on your credit card payments.
How Can Defaulting On Your Credit Card Payments Be Overcome?
If you have no choice but defaulting on your credit card payments, you have some options. None of them may be appealing, especially if you’re still struggling financially.
Of course, filing for bankruptcy can help you restructure or remove much of your credit card debt. But it will remain on your account for up to ten years and can make it really tough to get a mortgage, an auto loan, or another credit card. Bankruptcies can also cause your insurance company to charge you more and could impact your future job opportunities.
If you’ve ruled out bankruptcy or if your credit card in default is your only debt, you have three choices.
1. Pay the Account Total
Many creditors will agree to remove a bad listing on your credit report in exchange for you paying the total you owe, including the fees. This is the best way to quickly heal your credit score, though it can take a couple of months to rebound until the payment is received and reported to the three main credit bureaus. Make sure that you get an agreement in writing to remove the delinquent account from your credit report before you finalize your payment. This is most easily done before your debt is sold to a third party.
2. Settle your Account
Your credit card company — or, if the debt has been sent to collections, a debt collection company — may agree to settle the account for less than what you owe. You will have to negotiate for the lowest possible payment, but you may be able to get all the late fees and charges removed. Some people are lucky enough to get as much as half the amount of their debt knocked off the balance. Your account will be closed, and you will likely continue to have the account on your credit report.
3. Ignore the Account
You can act like the proverbial ostrich and keep your head in the sand, ignoring the credit card in default. This won’t stop the credit card company or collections agency from trying to contact you about the debt. However, if third-party debt collectors are bordering on harassment, you can send them a notice to cease and desist contact. They must do so under the Fair Debt Collection Practices Act (FDCPA).
Ignoring your debt can increase the chances that you’ll be sued for the amount owed, either by your credit card company or by a debt collector. Even if you have sent a cease-and-desist letter, a debt collection agency can still initiate legal proceedings against you. If you are fortunate, the debt will be written off or sold to another collection agency that chooses not to pursue you for the amount you owe until the statute of limitations (which varies by state) expires.
How Can You Avoid Defaulting?
If you’re not to the point of defaulting on your credit card bills yet, seek other options. Credit counseling can assist you in making a plan for repayment and working with your card issuer to avoid going into default. Most credit card companies are as eager for you to avoid defaulting on your debt as you are. However, they’re not going to give you help — you’ll have to call them with a plan and a specific request to lower your minimum payment or your interest rate.
In most cases, you’ll have to close your account to get any concessions from the creditor. But taking steps early on can reduce your late fees and increase your chances of emerging from a tight financial situation without a blemish on your credit report.
