What to Do If You Default On a Credit Card
Credit cards can be a big convenience, when you are in need of money. But they can also turn into a curse, if you do not know how to use them prudently. You can easily find yourself in deep debt, if you spend unwisely and pay just the minimum every month. When the bills increase to a point, where you are unable to pay them back, things can turn quite bad for you financially.
Consequences of default payments
Late Fee: If you default on the payments, or pay after due date or make only the minimum payments, you will be charged a late fee for the default payment in your next bill. This happens, even if you pay for two months together.
Higher interest rate: If you have made a default payment and still continue spending on the card, the EMIs and cash withdrawals you do will be on a higher interest rate. This is applicable to the regular purchases too.
Reduced credit limit: Your credit limit will be reduced, limiting your spending capability in all future transactions.
Withdrawal of interest free privilege: In case of default payments, the credit with no interest privilege that is allowed on your card will be withdrawn, or it can even be permanently disabled. For new cards, this interest free period is 55 days for the first month, and later on, it is 10 days from the due date of current bill to the date, when the subsequent bill is generated.
Bad credit score
Defaults you make are informed to CIBIL by the bank. This will affect your credit score. And it will also cause difficulty for all the present and future loan and credit card applications you make. The interest rates for loans will be higher, if you have credit score is not good.
When you do not make the credit card payments for a period of 90 days, your case is sent to the in house recovery section of the bank or to a third party agency that deals in recoveries. You will be constantly followed up for recovering the due payment.
In spite of many stringent and customer centric rules being introduced by Reserve Bank of India, it is quite harrowing to handle the recovery agents. The best way is to take a diligent attitude. The consequences listed above can together affect your financial plans negatively. And the impact on your credit score will take a long recovery time.
In case you are unable to pay, you may face collection action or lawsuit from creditors for the accounts that you have defaults on.The only option is to file for bankruptcy. Bankruptcy lets you eliminate all the debts provided your income limit is within that of the qualified level. Your assets and income will be assessed, and you will have to repay the sum you owe in a period of time set by the bank.
The right attitude to opt in such a situation, is to not allow the situation to occur in the first place.If you are unable to make the payments punctually, you should inform your bank. By communicating your issue, it may be possible for the bank to reschedule the payment date to a time, when it is possible for payment. Banks also help in providing payment schedule that allows you to pay the money in installments. This will be easier on your finances.
And when you have cleared all the due payments, you need to ask the bank for a certificate of account closure. You should also ask the bank to inform the completed payments to the rating agencies. This will ensure that you are not refused a loan application or levied a higher interest rate due to the bad credit issue.
Taking conscious and responsible measures to avoid defaulting on the payments such as opting for a personal loan, converting the loan to EMI, asking for a lower rate of interest or transferring the balance to another card will also help immensely.