A layoff, medical problem or sudden car repair can deplete financial reserves and create payment delays, even against your best intentions. Making the decision to forgo even the monthly payment on a credit card bill may furnish some necessary financial breathing space, but it comes with consequences. Forward thinking and action can minimize some of the damage.
Identification
Nonpayment of an unsecured credit card signifies that the cardholder has missed the 30-day window of on-time payment, including the grace period. For a payment to count, it must be at least the minimum monthly payment. A lesser payment won't count as a full monthly payment. The credit card company reports nonpayment at certain intervals to the credit reporting bureaus, so there's a negative mark at 30, 45, 60, 90, 120 and 180 days.
Significance
A nonpayment on an unsecured credit card carries significant repercussions. Your credit score drops and collection letters from the bank start arriving. The bank may also resort to repeated phone calls, which may become annoying. After a long enough period of nonpayment, the bank may sell the account to a collection agency, which also will pursue you through calls and letters. It can leave another negative entry on your credit report. The bank eventually may take you to court to sue for the proceeds. If you lose the case, the credit bureau records a judgment that stays on your record for seven years.
Effects
The effects of credit card nonpayment can worsen over time. A 30-day late notation isn't as bad as a 180-day late notation. However, it's enough to raise questions if you apply for a mortgage, credit product, job or lease. A missed payment can make a new potential creditor wary of extending a loan, and will drive up the interest rate on any loan product that you do obtain. Also, there's still interest accumulating on the account. Each missed payment means the interest capitalizes on the growing principal amount. After the first missed payment, look for your interest rate to rise. With certain cards, the rate can double or triple immediately after you've missed a payment and can stay that way, even after payment.
Misconceptions
After credit card nonpayment or default, a collection agency may take the debt. If that happens, know that you have rights, even though an unscrupulous collection agent may say differently. According to Illinois Legal Aid, a collection agency's best shot at collecting is to become a nuisance, and that's all it can do. "[A collection agency] cannot send you to jail -- you can never go to jail for owing money on a bill! They can't do anything more than bother you," Illinois Legal Aid says. According to the Fair Debt Collection Practices Act, a collection agency also cannot force you to pay, use obscene language, harass your friends, boss or family, or claim to be a lawyer or court. Any of these is a civil violation with at least a $1,000 penalty for each offense.
Prevention/Solution
If you can't pay your unsecured credit card debt, take steps to prevent problems. Call the bank and explain your circumstances. If possible, offer at least some sort of good-faith payment to show you intend to pay your bill. Even if the bank says no and the account goes into collection, you can still minimize the stress of collection attempts. Write a cease-and-desist letter to prevent further calls and letters. Also, check if you're collection proof: If you make below $371.25 a week, make income from a protected source like Social Security or own property less than $4,000 in value, collectors cannot pursue. Be proactive at the first sign of trouble to prevent your debt situation from becoming worse.
0 comments:
Post a Comment