What You Can Do About Credit Card Default

Couple reading notice of default on a credit card debt

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Credit card default happens when you have become severely delinquent on your credit card payments. Default is a serious credit card status that affects not only your standing with that credit card issuer but also your credit standing in general and your ability to get approved for 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 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 a 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 default, your application will likely be denied because creditors think you are at risk of defaulting on any new credit obligations. In fact, some lenders will not approve you at all until you have cleared up the default balance (or it drops off your credit report).

By the time your credit card defaults, you have 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 have 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

The following are the limited ways in which you can deal with credit card default:

  • Pay the account in full (if you have the money). 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 while others will not, but you will not know if you do not ask.
  • Settle the account for less than the amount due. It may be possible to settle the debt. The creditor does not have to accept an amount lower than the balance due, but some can be persuaded.
  • File for 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 to 10 years, so it is not a decision to enter lightly.
  • Do nothing. You can try ignoring the account, but 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 are 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.

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