Tuesday, June 28, 2011

What happens when you don’t pay your credit card bill?

Credit card default happens when you borrow money on your credit card and never pay it off. The path to default is unpleasant and full of increasingly angry phone calls from the company you owe money to. Let’s take a look at what usually happens.

A Credit Card Default Example:

  1. You receive a $5,000 line of credit with XYZ Credit Card Company.
  2. You charge $5,000 on an awesome flat 3D television,sofa, and furniture. You’ve borrowed the money from XYZ Credit Card Company and have 30 days to pay it back.
  3. 27 days after you got your awesome  setup, you lose your job. Due to poor financial planning you don’t have an emergency fund and have no way of paying the credit card company back. Strangely enough the electronics store you bought your gear from has no interest in taking your equipment back now.
  4. You miss your minimum payment of $100 on your bill’s due date. The credit card company charges you a late fee and financing fees (interest) based on the agreement you signed with them when you first opened the account. You’re probably looking at a $30 late fee plus the interest charges. Your balance jumps by $145.
  5. After some period of time, usually 60 to 90 days, the credit card company will move your account standing to “in default” because you defaulted on the loan they gave you. During this time frame you are still wracking up interest and fees.
  6. Leading up to 180 days after you were supposed to pay the bill the company will continue to call and try to collect, convince you to make a payment, something, anything to get part of the loan back. They really don’t want to lose that $5,000. They can call you 9 to 10 times a day until they get you over phone.
  7. After 180 days the company usually gives up and writes off the amount of the loan you received. They then sell the account to a collection agency for pennies on the dollar. The collection agency will now do anything it can to make you pay them back.
It’s not a pretty picture nor can I imagine it is fun to go through. You fully intended to pay the loan off, but times got tough. You made poor financial decisions, and you simply couldn’t pay. Credit Card Company is understandably not to keen to hear your  story.

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