What are the consequences of credit card default?
Credit cards will be much beneficial for us if we can use them wisely. Overspending through your credit card can make you fall into a debt trap that can hamper your budget and eat all of your future income.
The biggest mistake a credit cardholder can make is not paying the credit card due bills on time. By not paying your pending bills you will step towards increasing debts as you may have to pay penalty charges and interest payments.
If you pay off the entire balance of the credit card in full every month, the credit card company will charge no interest on your due balances. But if you do not pay off the total balance, the credit card issuing bank will charge full interest on the total outstanding balance, starting from the date after your due date.
In India, there are thousands of credit cardholders like you who don’t pay credit card bills totally. As a result they might also face some consequences:
What happens if you don’t pay credit card bills?
- Late fees
- Loss of introductory APR
- Penalty APR
- Damage to credit score
- Late fees
- Increased damage to credit score
- Closed credit card account
- Late fees
- Greater to credit score
- Debt sold to a collection agency
A case under the Negotiable Instruments Act will be filed against you if you pay credit card bills via cheque, and the cheque bounces. Apart from that, a case under the Payment and Settlement Act will be filed against you, if somehow your payment via electronic transfer (like an auto-debit service) fails due to insufficient funds in your account.
In both cases, the credit card company( bank) should notify the cardholder about the situation and ask for payment within 30 days of the cheque bouncing/auto-debit failure. If you do not make the payments within 15 days of the notice, a case under these sections will be filed against you.
If you fail to pay credit card bills on time or keep increasing credit card debts, it can put you into a blacklist with credit rating agencies such as CIBIL.
How to resolve a credit card default
The longer you take to make payments, the more critical the situation may become. In the end, a civil case might be filed against you. If you want to avoid this situation, make the minimum payments for every card each month.
Do you need to settle credit card debts?
The Impact on your credit score
So, as credit card debt settlement harms your credit score, it is not a good idea to opt for this option. Instead, you can talk to your credit card company (bank) and request them to suggest easy repayment options. If they allow you to make payments via monthly installments, make sure you pay those installments on time every month. You should also stop using that card for a while.