Credit cards are a convenient way to make purchases and manage your finances, but they come with significant responsibilities. One of the most significant risks associated with credit cards is the possibility of defaulting on your debt. Defaulting on your credit card debt can have serious consequences that can impact your finances and credit score for years to come.
In this blog, we will explore the consequences of becoming a credit card defaulter and provide tips on how to avoid this situation.
Negatively Impacts the credit score
Late or missed credit card payments can harm your credit score, which negates the primary advantage of using a credit card. To enhance your credit score, you must use your credit card effectively and pay your bills promptly. Maintaining a good credit score is essential to qualify for higher loan amounts in the future. If you fail to pay your bills on time, it can have adverse effects on your financial well-being in the long run.
Credit card account gets blocked
Failing to make credit card bill payments for up to six months will result in you being labeled a credit card defaulter, leading to blacklisting from the bank and the eventual blocking of your credit card account. This could cause considerable financial distress as you may be unable to access credit or may have to rely on other less favorable means of financing.
Leads to legal implications
When credit card bills remain unpaid for an extended period, it may suggest to banks that you are engaging in fraudulent activities. This can have serious legal consequences, as banks may pursue legal action against you to recover the unpaid amount. This can impact your financial stability and limit your ability to access credit when you need it.
High-interest rate is charged
If you fail to make credit card bill payments for more than 60 days, credit card companies may charge interest rates of up to 30% on the overdue amount. This interest rate is also applicable to new purchases made using a credit card. If this pattern persists, the interest on your credit card bill can quickly exceed the actual bill amount, leading to an increasingly precarious financial situation.
Interest is applied on outstanding balance
Despite a common belief among credit card users, paying only the minimum amount due on your credit card bill before the due date does not exempt you from paying interest charges. In fact, interest charges are levied on the outstanding amount starting from the due date, regardless of the minimum amount paid. Therefore, it is essential to pay the full credit card bill amount to avoid incurring interest charges.
How Loan Restructuring for Credit Card can prevent you from becoming a Credit Card Defaulter?
Loan restructuring is a process where you work with your credit card issuer to change the terms of your debt to make it more manageable. It typically involves negotiating a new repayment plan that includes lower interest rates, reduced fees, and more extended repayment periods. Loan restructuring can help you avoid defaulting on your credit card debt by making it easier for you to keep up with your payments and reduce your outstanding balance over time.
When you enter into an agreement for loan restructuring for a credit card, you will likely have to agree to certain terms and conditions, such as making all of your payments on time and not using your credit card for new purchases. It’s important to read and understand these terms before agreeing to them so that you know what is expected of you
If you want to know more about credit card loan restructuring, contact Lin International Debt Management.