Credit cards are now an essential spending tool. Credit cards are attractive with the rewards and savings it offers on your spending. At the same time, missing payment of your credit card bill can cost you a lot both in terms of money and your credit rating. Let us now read more about credit card default and the ways to come out of it.
What Happens When You Miss A Credit Card Payment?
When you purchase a credit card, you enter into a credit card agreement. It contains important terms and conditions relating to payment and default. The product catalogue contains details about fees, charges, and interest rates. It is important to read deeply and understand the terms of your credit card.
When you do not pay your credit card bill on time, one of the basic things is the lender will start charging Annualised Percentage Rate (APR) interest rate on your outstanding bill. This will significantly add to your existing burden. Apart from this, late payment fees and penal APR will also be charged.
Qualitatively, you can bring larger damage to your credit score even when one month's payment is missed.
We recommend an additional read : How much does missing a credit card payment affect credit score
If you default for 3 months, your credit card will be deactivated and closed.
If the delay is more than 3 months, your outstanding will be sold to a collection agency and your name will be added to the list of defaulters.
When the recovery seems impossible by the collection agency, a lawsuit can also be filed against you.
If you feel like reading a horror story, But, this is not the end of it as there are ways in which you can rebound and make things right.
Ways To Patch Up Your Credit Card Default
Stop Using The Credit Card
If you feel that you are or you will be missing out on paying the credit card due, stop spending on the credit card. This will help to avoid adding more burdens to your dues.
Start As Low As You Can
Try to pay the outstanding as much as you can. Repaying your bill doesn’t mean that you should clear the entire outstanding in one go. You can pay the bills as and when you have a cash inflow. This will reduce your liability and help your credit score to improve in little ways.
Balance Transfer
One of the popular methods to repay long outstanding credit card bills is transferring your dues to another bank credit card. You can also take a personal loan to repay your outstanding credit card. This is called debt consolidation.
You can convert your big-ticket purchases into EMI to avoid saddling your credit card bill in a single month. If you feel that you will not be able to clear the bill immediately, you can request your lender to convert the credit card outstanding into EMI for easier payments.
Get In Touch With Your Lender
Your relationship with the lender can be a light at the end of the tunnel. You can speak with your lender to find ways that can help you in the distress. The lender can also consider extending the due dates or other reliable methods to avoid credit stress.
Ways To Avoid Falling Into The Credit Card Default
- Borrow only what you can repay. Credit cards may be quite attractive with lots of offers but ensure it does not lead to incessant spending habits.
- Prioritise your spending. Have a personal spending limit on your credit cards. Know your billing cycle and avoid making big-ticket purchases anywhere near your billing time.
- Understand the interest rate and late fees charged on your credit cards. Pay the credit card that has a higher interest rate first.
- Keep track of the spending on your add-on cards. You might have missed the big picture while focusing on your credit card. Any default in payment of add-on cards will affect the credit score of the primary cardholder only.
Conclusion:
Credit card defaults can be a nightmare that takes a toll on your peace. Financial uncertainty can knock on the door at any time. However, it is always advisable to have a backup plan when things go wrong. Good financial discipline includes tracking spending habits and repaying the bills on time. Ensure your credit card defaults are minimal to have good credit health.
FAQ of What Happens If You Don’t Pay Your Credit Card Bills On Time?
1:When will my credit card be blocked in case of default?
If you have defaulted on your credit card payments for more than 90 days, your credit card will be blocked.
2:How is my credit score impacted in case of credit card default?
If the default is less than 90 days, the impact on credit score is less. You can recoup your credit score by making small payments in the interim period. However, a credit card outstanding for more than 90 days can bring your credit score down badly. The impact on credit score also depends on the amount of outstanding and the number of payments missed.
3:I’m not able to pay for my son’s add-on card. Will it be considered a default?
Yes. If you are the primary cardholder, you are liable to pay for the add-on cards too. Any default in payment of add-on cards will have an impact on your credit score.
4:When will I be sued for a credit card default?
When your credit card account is outstanding for more than 180 days, you can expect a lawsuit from your lender.
5:What does it mean to be blacklisted?
When a credit card is used for any listed fraudulent transactions, the activity is monitored and the credit card is blacklisted. It can’t be used further.