Skip to content
Home » What are the Potential Consequences of Defaulting on a Loan or Credit Card Payment?

What are the Potential Consequences of Defaulting on a Loan or Credit Card Payment?

Skipping payments on your credit cards on a regular basis may label you as a credit card defaulter, affecting your financial situation. Being in default on the payments to your credit cards may arise due to unexpected problems or accidentally missing payments.

Unemployment, medical treatment, or the failure of a company are just a few of the reasons why what may appear to be attainable debt, especially credit cards, can spiral out of control. Credit card debts, in fact, are generally among the first to spiral out of control in these scenarios due to excessive financing charges, late payment fees, and additional penalties. Missing due dates or cash flow concerns, on the other hand, may result in accidentally delayed payments with credit cards.

In this section, we will discuss what constitutes credit card default and the situations that you are likely to find yourself in if you default on your credit card balances.

What exactly is a credit card default?


A single missed credit card payment does not constitute a default. A payment default happens whenever you miss paying the credit card’s minimum amount due (MAD) for a few months in uninterrupted periods. The card company generally sends the default notice immediately after six consecutive payments have been missed. The issuer, however, has the last say. As a result, it is critical to make payments on your credit card account on a regular basis and in full to avoid exorbitant interest costs and becoming a defaulter.

What Takes Place When You Miss Payments on Your Credit Card?

As previously stated, if you skip the initial payment, the account associated with your credit card is not going to be marked in default on payment. Some issuers even provide an extended grace period following the deadline for payments, during which no late fees will be assessed. If you continue to fail to pay the minimum amount, the company that issued the card will mark you as default. You will be regarded as delinquent for the total number of days that you have not paid your credit card bill. Let’s look at an example to see what I mean:

Assume you missed the MAD payment deadline by 5 days. You are going to be tagged as a 5-day delinquent in this scenario.

If you do not pay the MAD before its forthcoming due date, you will be considered a 30-day delinquent.

Following this schedule, the company that issued the card will step up their attempts to recover the debt from you. You will be getting several phone calls, SMS messages, and emails. Loan Recovery Agents (LRAs) may also pay you a call after 90 days. Some credit card companies may file a police report or send a legal notice, but others can present you with a one-time compensation as a compromise. However, if you fail to make your payments for 190 days, or more than six months, the account you have for credit cards will be placed in the recovery pool. This is considered to be the final option for the issuer.

The company that issued the card will deem your account a Non-Performing Asset (NPA) in this case. This signifies that the account you have for a credit card is considered a loss by the company that issued the card. They can additionally initiate a legal action against you or sell your debt to a debt collector.

Dropped credit score

Credit card providers always disclose your credit card information to credit bureaus such as CIBIL and Experian. As a result, information about your agreement to settle or default is likely to be shared with credit bureaus. Settlements and defaults are both detrimental to your credit score. These will appear on your record for up to seven years. This will notify prospective credit card or loan companies that you are financially unable to repay the amount, and they will be afraid of lending to you or charging a high interest rate for it. This is why they believe you are more likely to default on upcoming payments.

Late charges and credit card Interest

If you do not pay the minimum sum due, late fees and credit card interest will be assessed. In addition, certain issuers raise the appropriate interest rate on the credit card in the event of late payments. This will quickly increase the remaining balance and cause the debt to go completely out of control.

Balance Transfer

A credit card balance transfer allows you to combine outstanding amounts from many credit card accounts into one. The combined credit card account has cheaper interest rates (relative to finance costs) and may potentially offer 0% interest for a limited time. This solution is best suited for short-term debt relief.

Personal Loans

You may additionally receive a personal loan to pay off all or some of your credit cards. These are the most suitable for debt consolidation in the mid-to-long term because they have a lower interest rate than credit cards. Fortunately, there is no security requirement, and certain institutions will disburse funds within a few hours. Personal loans can be obtained with little documentation. We are ready to help you with any of your personal requirements at Refer Loan. From a new car or home to paying off an old loan or credit card, we provide personal loans at some of the most affordable interest rates in the financial services sector.

Contacting the Card Company


You can also seek a one-time settlement if you are unable to pay off your increasing credit card account. In this case, the issuer will either cut the due amount or request only the principal amount. Issuers rarely reduce the desired sum to less than the primary amount.

Some issuers who refuse to settle may provide compensation in the form of payment delay or forbearance, waivers for specific fees and charges, or lower finance rates.

Though it may appear to be an effective means of getting out, a settlement will severely damage your credit score, with recovery taking years. Furthermore, the agreement to settle will appear on your credit history report for a period of up to seven years.

File for bankruptcy

If you have many bills, including credit card and loan debts, and you have exhausted every other available option, you may apply for bankruptcy. Individual bankruptcy is governed by the Insolvency and Bankruptcy Code (IBC). You can declare bankruptcy if your debt is greater than Rs. 500. The court will be attempting to determine whether the applicant meets all of the bankruptcy requirements. Please keep in mind that unless a compromise is made, all of your possessions will be split with your creditors. Always keep in mind that this should only be used as a last resort.

Cheques are checks drawn on accounts with inadequate funding. These are colloquially referred to as bounced checks. If you write a bounced check, the card company will drop you a notification requesting payment within 30 days. In this case, in the event that you continue to be unwilling to pay, the card provider may file a complaint against you.

Conclusion

Nearly all of us do not intend to get behind on our bills. Financial recklessness or another disaster can sometimes lead to serious debt. On the other hand, you must concentrate on getting out of debt and avoiding default. Additionally, in the face of an impending disaster, avoid feeling anxious or becoming nervous. Instead, take action and defeat it.

Leave a Reply

Your email address will not be published. Required fields are marked *