When you apply for and receive a credit card you are taking on a huge responsibility. The credit card company evaluates your credit worthiness and gives you a line of credit that they feel you can be responsible for. While most people will use their card to make purchases and then diligently make payments on what they charge, there are some people who, for one reason or another, do not keep up on their payments and eventually go into credit card default. While I’ve never been in this situation, I’m almost certain it’s one that you want to avoid.
Credit card default is the term used to describe what happens when a credit card user makes purchases by charging them to their credit card and then they do not pay their bill. The consequences of going into credit card debt are not fun as I saw firsthand the effects that this had on my father. Here is what you can expect if you default for one reason or another on your credit card.
The Path Of Credit Card Default
When you miss just one credit card payment, don’t panic, as it does not necessarily mean you are automatically in credit card default. In order to avoid the path of credit card default however, you will want to pay your bill as soon as possible. If you do not and your account goes 30 then to 60 and 90 days delinquent you can expect to start getting calls from your credit card company asking for their money. Additionally, you will be racking up late payment fees, interest fees, and, if you are using a rewards credit card for airline miles, you will lose your rewards points. Usually after your card reaches 180 days delinquency your debt will be forwarded on to a debt collection agency.
The collection agency will now be in charge of trying to collect the debt and they will do just about anything they deem necessary to get the delinquent money from you. The debt settlement company can also choose to file suit against you for the money owed and work towards injunctions to garnish your wages.
My wife is a huge fan of the show Dateline – yes, I’ve been suckered into it, too. One of the shows went behind the scenes of ruthless practices that some collection agencies (emphasis on “some”) go to trying to get you to pay. While I know most do abide by the rules, getting on a collection agencies call list is one that you want to avoid.
Your Credit Score
When your credit card account goes into default, you can expect your credit score to take a big hit. The better your score was to begin with, the further it will fall. Just missing the first payment will have impacted your score and as you continue to ignore your debt to the card company and your account becomes more and more behind, you can expect your score to continue to plummet.
The dip in your credit score can have huge implications on you receiving credit for any other means like a car loan or a mortgage, for example. Additionally, things like your insurance rate, can also be affected.
What You Should Do
First and foremost, if you are currently not in credit card debt, do everything you can to avoid it. This means never charging more than you can afford, always paying your bill on time, or if you are getting close to the edge surf your account to one of the best balance transfer credit cards and pay the thing off. If you are already in over your head, you need to do everything you can to start making payments. If your delinquent card has not yet been forwarded to a credit collection agency, you should contact your card company and do what you can to work out a payment schedule. If it is in collections you will need to work with them to come up with a way to pay back the money due. If you are in over your head and cannot make payments at all, it may be in your best interest to get in touch with a credit counselor for help.