It is well known that credit cards can slip you into debts sooner than you actually think. Credit cards can be notorious in notching up huge balances on your account, thanks to delayed payments, an extravagant shopping spree, and sky-high interest rates. More often than not, it is unnecessary usage that is the main culprit. For whatever reasons, a credit card debt gone bad is a worrisome situation and needs to be taken care of right away. Here is closer look at bad credit card debts and ways to deal with them.
What is a bad credit card debt?
A bad credit card debt is the money you owe the credit card company when you fail to make the due payments on your account. Credit card balances that are past their due date and continue to remain unpaid fall in line to be acclaimed bad credit card debt.
What happens to a bad credit card debt?
When a debtor fails to make a due payment, credit card companies mark this account as delinquent. The card user is given a timeframe of 180 days to make payments towards his/her dues. If payments come through, companies do not levy a charge-off on the account. If, however, no payments are made even after 180 days, credit card companies showcase the delinquent accounts as bad credit card debt.
Since credit card debts are unsecured debts, credit card companies cannot get their dues by claiming any collateral and turn over to collection agencies for recovery procedures. Some companies may sell off bad credit accounts to third party agencies that then take up the task of procuring payments from the debtor.
These debt collection agencies demand payments from debtors by making persistent phone calls and serving written notices to the debtors. In case these measures fail to recover the payment, collection agencies resort to legal procedures against the erring debtor.
The after effects
Charged-off accounts can damage your credit report big time. A bad credit can appear on your report for up to a period of seven years. Moreover, legal verdicts can easily lead to garnishment of wages. Under garnishment, your employer is directed to hold back a portion, or the whole of your earnings, and render them to the court or to the party that won the judgment against you.
The effects of a blemished credit report are common knowledge. The chances of getting a loan or credit are severely dented if your credit report shows a charged-off credit payment. The turning over to collections, initiation of lawsuits and garnishment make future lenders turn apprehensive in lending out to you. Even if a lender agrees, chances are that you will be charged exceptionally high rates of interest.
How to handle a bad credit card debt?
Bad credit card debts have turned so only because they have been allowed to. It is important as a debtor to get rid of these liabilities, and prevent any damage to your credit report. Here is how to go about it:
1. Balance transfer: Try credit card balance transfers. Look for a credit card company of repute and transfer the outstanding balances from each of your card on to a single, low interest credit card. The advantage here is that you get rid of making payments on each of your cards and also save up a little money by virtue of the low interest on your new credit card.
2. Personal loans: Although a personal loan comes at high interest rates, they can be considered as a plausible option to clearing away debts. If you have tried all avenues and risk a lawsuit being filed, try for a personal loan. Be very clear about the terms and conditions of the offer and ensure that the interest on your personal loan is lower than the cumulative interest on your debts.
3. Debt settlement: Most collection/credit card companies readily offer settlement of debts. By going in for debt settlement, you can pay the companies an amount, which is quite lower than the actual, and the account is considered settled. Although this procedure still has a somewhat negative impact on your credit report, it does not hit as hard as in the case of non-payment. You can further negotiate terms with your creditor so as to minimize the impact on your credit score once you make the payments.
4. Bankruptcy – the last resort. If all fails, you may claim bankruptcy. Remember that although bankruptcy absolves you off debts, but has serious consequences in the long run. A bankruptcy remains on your report up to ten years and you will have to tough it out against getting loans or credits in the future.