The Consequences of Defaulting on Credit Card Debt

Defaulting on credit card debt is a growing concern because more and more are defaulting due to job loss or lay-offs. Many people mistakenly believe that there are no consequences on a credit card default. Here are a few things to think about before you forget about those credit card balances.

Credit Card Calls

The first step that the credit card companies will take is to start calling you. Once you are about 60 days past due in most cases, they will start to call you from their call center. While they cannot legally harass you, some companies call often. If you fail to answer the phone, they will call back and will continue to call you several times a day, until they get you on the phone.

At first, they are usually willing to work with you. They can set up a payment plan or erase late fees if you are not that delinquent. However, the farther the process goes, the less likely they are to help you because they will sell the account off to another company and write it off as a loss for their company.

Collections

The next step of the process is to send your account to collections. Collection companies will utilize the same technique as the credit card companies, however they are much more persistent. Collection companies get paid a percentage of what they collect, so they are also willing to set up a payment plan with you. They might even offer you favorable terms to work within. When you ignore their calls, they will send you letters. You will probably receive a series of letters with threatening statements.

They will threaten to turn you over to another collection agency or take you to court. Collection agencies can not technically do anything to you other than call and send letters. Therefore, if you ignore them, the process will move onto the next step.

Lawsuit

If you continually ignore the requests of the credit card companies and the collection agencies, they will eventually turn it over to the courts to decide. You can hire an attorney to help you in the process, but it usually will not help because you signed up for the credit cards under the assumption that you would repay the balances. They have your signature on a legal document that says you understood the terms and were willing to pay, therefore the judge will usually order a judgment.

Unless you have a really good reason for not paying the debt, you will most likely be forced to pay the judgment. If you cannot pay off the judgment, the court will attach your personal possessions to the debt to pay it off. Your house, your cars, your retirement account or any other personal possessions can be used to repay the debt.

A judgment can affect your quality of life. They can also garnish your wages and take up to 25 percent of your income.

Long-Term Problems

Defaulting on credit card debt will have many long-term consequences. You may not be able to get an unsecured credit card again for many years. Owning a home or making other large purchases may not be possible with the bad credit score. Credit card default will be reported on your credit record for 7 to 10 years.


Improve Your Credit Score - Free Consultation