By Loans Canada
Are you having trouble paying your credit card bill? You’re not alone. Whether you have a lot of debt from COVID that you’re struggling with, or an unexpected life circumstance leads you to you falling into debt, you may reach a point when your credit cards are maxed out and you can no longer afford to make the minimum payment.
In this article we’ll look at what happens if you stop paying your credit card bill.
What Does it Mean to Default on Your Debt?
When you default on your debt it means that you have failed to meet all the contractual obligations for any money that you borrowed. In this article we’re referring to the obligations found in your credit card agreement that you received and agreed to when you accepted your credit card.
Every credit card agreement has basic rules you must abide by. As a cardholder, you must pay at least the minimum payment. You aren’t actually required to pay off the credit card in full. The credit card company will provide you with its calculation for the minimum payment. It’s usually the greater of a flat amount or a percentage of the outstanding balance, such as 2% or 3%.
If you are late on the minimum payment, that’s when you are technically not meeting the terms and conditions that you first agreed to. Even if it’s a small amount owing, you are still considered in default. It’s up to the credit card company how they treat this situation. Some credit card companies will say that you’re in default right away after one payment, while others will cut you some slack and will only label you in default if you miss more payments.
Regardless of what the lender considers in default, going into default is an unwise financial decision. Not only can it lead to collections, but it could also hurt your ability to take out further financing.
What Happens with Missed and Late Payments?
It depends on the type of loan we’re talking about. If it’s a mortgage, it’s for a lot of money. As such, the lender will likely reach out to you right away if you miss a payment and try to work out a plan to get your payments back on schedule. That’s because it’s costly for the lender if they must sell your property.
With a credit card on the other hand, it’s a lot more common for late payments to happen. Often late or missed payments are an honest mistake. A borrowed may have several credit cards and forget to pay a card one month.
However, when a single credit card has several late or missed payments in a short time span, that’s when it will get the credit card company to act.
You’re more than likely be charged a late fee and your interest rate could go even higher than it already is. That’s why it’s a good idea to be proactive and approach your credit card company if you think you are going to have problems making the payment. At usually gives you more control over the process, rather than being at the mercy of the credit card company.