Consequences of Credit Card Default

Reasons You May Become a Credit Card Defaulter

While getting a credit card issued under your name, you are liable to sign off multiple terms and conditions. If you fail to adhere to any of those terms and conditions, you may fall under the bracket of being called a defaulter.

Here are some of the major reasons why you may happen to become a credit card defaulter-

Reason 1: Missing Out the Due Date of Credit Card Bill Payment

The credit card issuer sends credit card statements monthly. You may miss out on reading the correct due date or are in the notion of a false one.

If any such instance happens, your confusion may cost you to become a defaulter.

Reason 2: Spending More than the Allowed Limit

Exceeding your credit card limit is a big no-no. But if you happen to do so and fail to repay the amount, you may become a defaulter in no time.

Reason 3: Dilly-dallying on the Credit Card Bill Payments

Procrastinating is bad, really bad when it comes to delaying your credit card payments. Not paying off the levied payments can cost you a fortune within seconds.

If you wait till the very last moment to make your credit card payments, you are ultimately putting your wallet at risk of fat charges.

Major Consequences of Credit Card Default

Listed down are some of the primary yet significant consequences of defaulting on your credit card payments-

1) Legal Action

A credit card issuer may term you a defaulter if you do not pay your credit card bills for a prolonged period. You will likely incur a legal action filed under your name and termed fraud. You definitely wouldn’t like being called so, right?

So, ensure to pay your credit card bills on time to avoid additional interest charges and any legal action from the governing body.

2) A Direct Impact on the Credit Score

Your credit score is the first thing that will likely be affected by your credit card defaults.

Missed or late payments lower your credit score and diminish your prospective credit requirements as well.

Therefore, to maintain your credit score and credibility, it is important to pay your credit bills within the said due dates.

3) Surged Interest Rates

Everyone is terrified of high-interest rates. You must be, too, right?

Well, you may be levied with high-interest rates in case you do not pay your credit card bills timely. The interest rates may be as high as 30-35%, scary no?

Thus, to avoid getting caught in the pail of high-interest rates, ensure to pay your bills on time.

4) Blocked Credit Card Account

A primary consequence of credit card delinquency ends up in a blocked account. If you consistently fail to pay your credit card bills, you will be deemed a fraud, resulting in a blocked credit card account.

To avoid this, we suggest you pay your credit card bills well ahead of time. A blocked credit card not only hampers your credit score but your urgent credit needs as well.

5) Acquisition of Your Assets

Getting your assets acquired by a bank in case of credit card defaults sounds frightening, true that?

Well, yes, banks can seize your savings accounts to clear your outstanding balances if you fail to settle your credit card defaults within the given time. In some instances, the banks may even seize your property, assets, etc., to pay off your defaults.

Hence, to avoid such an unpleasant situation, it is better for you to make your credit card payments on time!

How to Not Be a Defaulter

As we said above, you may be considered fraud if you consistently fail to pay your credit card bills.

Here is how you can not be a defaulter-

• Reminders: Putting timely reminders on your phone or email can be a good option to remind yourself about credit card payments.
  
  
• Auto-Pay: Nowadays, every credit card comes with an Auto-pay feature. Sign-up for the same to avoid any payment delays.
  
  
• Never Defer: Don’t be a procrastinator by waiting for the last billing date. Pay it off as soon as you receive the monthly statement.
  
  
• Pay your MAD: Ensure to pay the Minimum Amount Due (MAD) before the last date.
  
  
• Credit Card EMI: You can ask your credit card issuer to convert your outstanding balance into some reasonable Credit Card EMIs. If they approve your request, you can then pay it off over a stipulated time.

Take Away

Just imagine this hypothetical scenario. You have just received a legal notice from your credit card issuer saying you have been called off as a Default, asking you to pay a humongous interest as a charge; otherwise, your assets would be seized.

What would you do? Panic immediately, right?

The scenario is certainly frightening. Therefore, to avoid such a money-turmoiling mess, and being on the receiving end of getting some punishment for a credit card default, make sure to take the necessary steps to pay your credit card bill payments timely.

Being free of such default charges can help you boost your credit score, your probable loan requirements, and your credibility too.

Hence, take help from the above-suggested ways and avoid becoming a credit card default.

Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.