Know the consequences of Credit Card default

When you miss multiple payments on your Credit Card, you may end up in a Credit Card default. Understanding the consequences and taking timely action can help you navigate this challenging situation without severe damage to your financial health.

Consequences of being a Credit Card defaulter

Late payment fees and interest charges
When you miss a Credit Card payment, late payment fees are imposed, thus increasing your debt burden. Additionally, high-interest charges on the outstanding balance continue to accumulate, making it progressively harder to manage your finances.

Negative impact on credit score
Defaulting on Credit Cards significantly damages your credit score. Each missed payment is reported to credit bureaus, lowering your score and affecting your ability to secure loans, mortgages or even favourable interest rates in the future.

Legal action
In severe cases, banks may initiate legal proceedings against Credit Card defaulters. This could involve court cases, additional legal costs, and the stress of potential legal judgments.

Debt collection agencies
If the bank cannot recover the debt, they may transfer your account to a debt collection agency. The agency may have more stringent rules when it comes to collection of dues.

Decreased credit limit
Banks may reduce the credit limits of those who default on Credit Cards as a precautionary measure. This restriction may hinder your financial flexibility and negatively impact your credit utilisation ratio, further lowering your credit score.

Dealing with Credit Card payment default: Actionable steps

Contact your bank
Reaching out to your bank should be your first step when facing a Credit Card default. Your bank may be able to offer you a Credit Card EMI option to help you manage your debt more effectively or a Personal Loan using which you can pay off your Credit Card debt.

Make a partial payment
Making even a partial payment demonstrates your intention to settle your debt. This can prevent further penalties and reduce the overall amount of interest accruing, showing creditors your commitment to resolving the issue.

Seek professional help
If you are overwhelmed, consider seeking professional help from financial advisors or credit counselling services. They can offer personalised advice, help you create a realistic repayment plan and even negotiate with creditors on your behalf.

Conclusion

Defaulting on Credit Cards can have serious and long-lasting consequences, but proactive steps and solutions can help mitigate the damage. By managing your finances wisely and seeking support when needed, you can rebuild your financial health.

To enhance your financial journey with exceptional rewards and benefits, consider using Axis Bank Credit Cards. These cards offer a range of features, including cashback, travel benefits and exclusive offers, making them a valuable tool in your financial toolkit.

Also Read: Credit Card debt: What is it & how to escape it?

FAQs

What is the penalty for Credit Card default?
The penalty for Credit Card default includes late fees, increased interest rates and a negative impact on your credit score, with severe cases leading to legal action.

What happens if you default on a company Credit Card?
Defaulting on a company Credit Card may impact your employment and result in your employer holding you responsible for the outstanding debt.

Do Credit Card defaulters go to jail?
In India, Credit Card defaulters do not go to jail for non-payment, but they may face legal action to recover the debt.

How can I settle my Credit Card default?
You can settle your Credit Card default by making consistent payments or paying off the debt by availing a Personal Loan or a secured loan.

Can a Credit Card default be removed?
Yes, a Credit Card default can be removed from your credit report over time by paying off the debt and maintaining good credit practices.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.