Defaulting on a credit card means that you stop making your credit card payments altogether. Defaulting has become one of the few solutions for cash strapped or out of work Americans. However, defaulting on your credit cards is not something to take lightly. There are several results that will occur when you default and these results have serious consequences to your financial future.
Defaulted Credit Cards Will Be Sent to Collections
When you default on your credit cards, the first thing that will happen is your card will be sent to collections. The first step in collections is the credit card company’s collections department. They will attempt a few times to collect a payment from you and then refer you to an outside collection agency. At this point, you will no longer be dealing with the credit card company.
An outside collection agency only gets paid if they collect a payment from you. This is the driving force in the collection agency business. You will be called numerous times a day and night. They will use every phone number they have for you including home phone, cell phones, and work numbers. They will call up to 10 times a day. They will leave messages on voice mail and answering machines.
This is not only annoying but it can also add quite a bit of stress to your life. It is difficult enough to deal with financial setbacks, loss of income or other money problems without having the phone ring constantly asking you for money you don’t have. You will also receive numerous items in the mail concerning your debt. You can ignore the calls but they will not stop.
Defaulted Credit Cards Can Result in Legal Action
After the outside collection agency attempts to collect payment from you and is not successful, the credit card company will file a legal suit against you. At this point you have the ability to try and settle your debt. This means you can negotiate a lump sum payment typically 1/3 of what you owe. Once you make this payment, the suit against you will be dropped. This whole process from missed payments to settlement can take a year or more.
If you don’t settle, the credit card company will continue the legal actions. This can result in a lien being placed on your home, your vehicle, and other assets. If these liens do not satisfy your debt, your wages can be garnished and you can be forced to provide your bank account information. You can withdraw most of your money before providing the information, but you will still have to pay some.
Some courts will give you the option to try and sell your home before you lose it. This will be much better for you since it will give you time to find another place to live and allow you to sell you home closer to the value it is worth. Anything above what you owe for the home will go to pay your legal obligation. Though losing your home is a negative experience, it is easier if you can sell it instead of going through foreclosure.
Defaulted Credit Cards Will Affect Future Buying Power
Your credit score is vital to your financial stability. Defaulting on your credit cards will drastically decrease your credit score. A low credit score will affect your future buying in many ways. If your credit score is too low, you won’t be approved for a mortgage, a car, or in some cases even rentals. This can stay on your credit report for up to five years (click here for free credit report offers).
If you do get approved for any of these things, your interest rate will be very high. Interest rate is based upon your credit history and credit score. When potential lenders see a default of one or more credit cards in your history, they will consider you at risk. At risk individuals are denied loans or charged very high interest rates. This may result in you fining yourself unable to purchase the things you need to in life.
Some credit cards are better than others about working with you when you get into a financially trying situation. To compare which credit cards have the most favorable terms for your situation, you can use the credit card “Chaser” tool. The tool will allow you to compare credit cards so you can find the best one for your lifestyle.
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