Credit Card Default and What You Can Do About It

Couple reading notice of default on a credit card debt

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Credit card default happens when you've become severely delinquent on your credit card payment. It's a serious credit card status that not only affects your standing with that credit card issuer, but also your credit standing in general and your ability to get approved for credit cards, loans, and other credit-based services.

How Credit Card Default Happens

When you accept a credit card, you agree to certain terms. For example, you agree to make your minimum payment by the due date listed on your credit card statement. If you miss the minimum credit card payment six months in a row, your credit card will be in default. Your credit card issuer will likely close your account and report the default to the credit bureaus.

In the months leading up to credit card default, your (late) payment status will be reported to the three major credit bureaus and your credit score will be impacted by the lateness of your payments. If you apply for any new credit cards or loans after a credit card default, your application will likely be denied because creditors think you're at risk of defaulting on any new credit obligations. In fact, some lenders won't approve you at all until you've cleared up the default balance (or it drops off your credit report).

By the time your credit card defaults, you've likely accumulated hundreds of dollars in fees and interest charges. Unfortunately, your options for clearing up the credit card default may be limited because of the number of payments you've missed on your account. Had you contacted your credit card issuer sooner, you may have been able to work out an arrangement to make payments on the past due balance and bring your account back into good standing. At this point, your credit card issuer will expect the account to be paid in full.

Options for Dealing With Credit Card Default

  • Pay the account in full, if you have the money, of course. First, try negotiating a pay for delete where the credit card issuer removes the account from your credit report in exchange for payment. Some creditors may agree, others won't, but you won't know if you don't ask.
  • Settle the account for less than the amount due. Settling the debt is also a negotiation. The creditor doesn't have to accept an amount lower than the balance due, but some can be persuaded.
  • File bankruptcy. Depending on the extent of the default and any other debts you have, you may consider filing bankruptcy to either restructure your debt and make it more affordable or to have it discharged. Note that bankruptcy stays on your credit report for 7-10 years, so it's not a decision to enter lightly.
  • Do nothing. You can ignore the account, perhaps decide what to do about it later on down the road. Note that the creditor can still pursue you for the debt, list it on your credit report, and may even sue you as long as the statute of limitations is in effect.

If you're getting calls from debt collectors, you can stop them by sending a cease and desist letter. Note that this letter only applies to third-party debt collectors, not the original creditor.