Question 1

What does it mean to default on a credit card?

Accepted Answer

Defaulting on a credit card may happen when you haven't made the agreed upon minimum payment on your account for a period of time, typically six months in a row. Your issuer may consider your account a loss and close it (known as a charge-off), send it to a collection agency, and, in some cases, start legal proceedings to recoup the debt. Just because your account is closed doesn't mean you are off the hook for the money you owe.

Question 2

How long does it take to default on a credit card?

Accepted Answer

Defaulting on a credit card may typically take around six months or 180 days, but it depends on the individual borrower and the card issuer. Because there is a long period of time leading up to a default, your account may likely be delinquent before six months, typically after 30 days. Once your account is delinquent, your card issuer may reach out to remind you of your missed payment. If you need help repaying your debt or your minimum monthly payments have become unmanageable, this may be a good time to see if your lender is open to a payment plan or other solution.

Question 3

What happens if you default on your credit card?

Accepted Answer

Defaulting on your credit card may have a range of consequences. Some of the most common include: Account closure: Your issuer may consider your account to be a loss and close it if you haven't made a payment for a certain period of time. You may no longer be able to use your card, and your account may be sent to a debt collector. An account closure may also affect your credit score. Debt collection: If your debt is sent to collections, it means your card issuer has sold your debt to a collection agency, and they may try to recoup the loss. Debt collectors may try to get in touch with you in a variety of ways, but the Fair Debt Collection Practices Act has protections in place in case of harassment or threatening behavior. Legal action: If a debt collector fails to collect your debt, your creditor may take legal action to recoup some of their losses. If they are successful, they may be able to seize your wages or property in place of the money you owe. However, the statute of limitations on a debt, or how long a debt collector or creditor has to take legal action, may differ from state to state. Impact on credit score: Your credit score may be impacted by a credit card default. Even a 30-day late payment may be reported to the three major credit bureaus, Equifax®, Experian®, and TransUnion®, and lower your credit score. A default may stay on your credit report for up to seven years and make it more difficult to be approved for new credit, as well as a loan, mortgage, or even employment in the future.

Question 4

What should you do to avoid credit card default?

Accepted Answer

To avoid defaulting on your credit card, there are a few steps you may take: Make minimum payments: Aim to make the minimum payment due on your credit card each month. While paying your monthly statement in full is a good way to pay off your debt more quickly and avoid accruing additional interest, making the minimum payment may keep your account current and in good standing. Contact your creditor: If you're going through a hard time financially, get in touch with your credit card issuer and explain your situation. Oftentimes, issuers want to help you avoid defaulting on your card. See if they offer to waive late fees, temporarily lower your interest rate, or come up with a more manageable repayment plan. Reach out to a credit counselor: Find a financial advisor or counselor in your area who may be able to provide personalized advice to help you approach your finances in a new way and create a plan to manage your debt. You might dial 211 to find nonprofit or lower cost credit counseling in your area. Consider a balance transfer: Look into transferring your high-interest credit card debt to a new card, also known as a balance transfer credit card, which may come with a low or introductory 0% annual percentage rate (APR) for a set amount of time, often known as a promotional period. An introductory rate may help you pay down your debt without incurring interest, but it's best to try and pay off the balance before the promo period ends.

Question 5

What should you do if you're already in default?

Accepted Answer

If you're already in default on your credit card, there are steps you may take to minimize the damage. Consider the following: Debt consolidation: With debt consolidation, you combine your outstanding debts into one new loan, hopefully with a lower interest rate. Having one monthly payment and due date may simplify your debt and make your repayment more manageable. Debt settlement: If you decide a debt settlement is right for you, you may be able to pay a lesser amount to your card issuer as a lump sum. In this case, you may need to hire a debt settlement company to help you negotiate with your creditor. The Federal Trade Commission advises looking for a legitimate settlement company and researching any fees and potential tax implications before moving forward. Bankruptcy: Filing bankruptcy may be considered a last resort because of the negative long-term effects on your credit report. While filing for bankruptcy may free you from paying back your debt, it may stay on your credit report for up to 10 years, according to the Consumer Financial Protection Bureau.

What Is Credit Card Default?

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