What happens if you default on your debt to credit card companies?
Default on credit card debt consequences can vary dramatically. In case you’re unclear on what defaulting on a credit card means, let me explain what this means. After you’ve failed to make a payment on your credit card for 180 days, your credit card issuer assumes you’re probably never going to pay them. At this point, the credit card issuer will close your credit card, write off what you owe as bad debt and sell your account to a collections agency. Read some more about what it means to default on a credit card.
The banks will go nuts for the first 180 days. When they call, tell them that they have the wrong number. Or change your number if possible. You can also screen your calls and then call the company’s general number and complain that they’re leaving messages for someone who had the number before you. Collections are aggressive, but they’re not the sharpest knives in the drawer. Don’t feel bad about lying to them because they will lie to you. If they get really nasty, take them to small claims under the FDCPA. You can win up to $1,500 if they violate the FDCPA.
Will banks sue you for defaulting on credit cards?
No, you won’t be sued. And even if they do, I’ll tell you how to handle it later. They rarely sue because that involves a few thousand to a lawyer and there’s an old saying in the biz, “don’t throw good money after bad.” Getting a judgment is easy. Collecting a judgment is an expensive pain in the balls. Anyone they send after you to collect judgment will probably want 50% and, after the lawyer’s costs and everything, they usually end up further in the hole. Which is why they rarely sue.
What happens after you default on credit card debt?
OK, you’ve defaulted. Do not worry about your credit score. Yes, it will go down, but that can be fixed. I’ll get to that later. You don’t need it unless you’re buying a house or car or something big. You don’t want to open another credit card, that’s for sure, so it’s not a big deal if it takes a hit.
After 180 days, GAAP requires banks to take bad debt off the books. This is a charge off. Statistically, when debt is over 180 days, the recovery rates are somewhere below 1%. It’s dead, and then your debt gets shuffled off to collection agencies. Bad debt gets traded around in portfolios. People buy it for pennies on the dollar (it’s worth less the older it gets) and the person who buys your $6k debt might only have $200 or $300 into it. If they can’t collect, they then sell it to someone else.
Default on credit card debt consequences
This is where you can cut a deal. I’ve seen some go as low as 10% to pay off a debt. Usually, you’re looking at 40%-50% or so. This is where your savings come in. Go to whoever holds your $6k card and offer them $2k to settle it. If they only have a few hundred into buying it, that’s a good deal for them. That’s a profit and they know they’re not going to get the whole thing. They’re used to these deals and 95% of the stuff they’re chasing has no money in it at all.
What happens to credit card debt when you settle with bank after defaulting on credit card debt?
When you settle, you can also include a provision requiring them to remove all negative credit information. Most will agree because it costs them nothing, means nothing to them, and – hey – they get paid if they agree.
What you want is Nolo’s book on bankruptcy and credit repair. Nolo is good and they will have all the correct letters and forms for you. Use it and be sure to follow up with the credit reporting agencies.
Do this and you’ll get out of debt in 12-18 months and have a perfect credit score. It’ll cost you $3k-$5k total. You will then have to begin the long process of rebuilding your credit score and coming back from defaulting on credit card debt.
Should you feel morally bad if you default on credit card debt?
Morally? Look, you guys have paid so much interest that you’ve already paid the bank back. Get your statements and add it up. You’ve probably repaid the debt already, so don’t worry too much about their bottom line. Further, even if they take a loss, who cares? Banks don’t pay any taxes and get to borrow at 0% from the fed, so they’re making huge profits at taxpayer expense. Do not feel bad for the banks. They get every possible advantage while holding your face down in the mud. Default is legal and this is what happens when you default. Default might be your best option.
What happens if a bank sues you after you default on credit card debt?
Oh, forgot to cover what happens if they sue. Like I said, this probably won’t happen. But if they sue and win, the judgment rate will be lower than your usual rate! Most courts have a low interest rate for judgments, often 5% to 10%, simple interest. The freakin’ court will give you a better interest rate than the banks do! So the absolute worst case scenario is that you will end up paying less than you are today!
Also, courts everywhere are backed up like crazy. If they do file suit, file a reply and the trial date will probably be 12-36 months out. Yeah, really. So that would be 12-36 months where you could save up and make offers to settle. They will settle. Further, the court will have some kind of mediation system where you can go in and bargain. So, really, do not worry about being sued. Even if that happens, you will be better off than you are today.
Seriously, default is a no-lose scenario. No matter what happens, you’ll be better off. More people should do this.