What Is Bad Credit Card Debt?

Credit card bills can fall to the wayside when a debtor struggles financially. Due to the unsecured nature of most credit card accounts, no collateral exists for the credit card company to seize in the event of nonpayment. Unfortunately, neglecting to pay credit card bills will result in a bad credit card debt, which can have severe consequences for the debtor.

Facts

Bad credit card debt occurs when an individual carries a balance on his credit card yet ceases to make payments to his credit card company. As soon as a debtor misses a payment, the credit card company classifies his debt as delinquent. If an individual fails to make a payment and rescue his delinquent account, the credit card company will eventually charge off the debt. A credit card debt that has been charged off or is severely delinquent and in danger of being charged off is a bad credit card debt.

Time Frame

Most credit card companies wait to charge off delinquent debts until 180 days pass without the debtor submitting a payment on the account. The goal of this practice is to give an individual with a delinquent credit account sufficient time to catch up on her past due payments and avoid a bad credit card debt. In the event that the credit card provider charges off the debt, evidence of the charge-off will remain on the debtor's credit report for seven years.

Effects

After a charge off, bad credit card debts are often sold or transferred to a collection agency. The collection agency's job is to recover as much of the debt as possible from the account holder. Most collection agencies attempt to secure payment on the account by calling the debtor or sending him notice via mail of the bad debt and demanding immediate payment. If these methods prove ineffective, a collection agency has the right to sue the debtor and obtain a judgment. In some states, a judgment from a creditor can quickly turn into a wage garnishment.

Features

In many cases, an individual may be able to settle her bad credit card debt for less than she owes. Collection agencies frequently make settlement offers to debtors, as the older a debt is, the more difficult it is to collect. An individual also may be able to negotiate a settlement with the original creditor prior to a charge-off. The creditor would prefer to recover a partial payment from the debtor rather than none at all, and successfully negotiating a debt settlement with the credit card company can prevent a future lawsuit.

Considerations

A bad credit card debt damages a debtor's credit score, hurting his chances of being approved for credit cards and loans in the future. As soon as the individual starts missing payments, the missed payments appear on his credit file. Because each consumer's payment history affects 35 percent of his credit score, the missed payments leading up to charge-off can be very detrimental. A charge-off further damages the debtor's credit. When the bad credit card debt is turned over to collections, the notation from the collection agency on the individual's credit, and the resulting judgment if he is sued, all contribute to damaging his creditworthiness in the eyes of lenders.