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You’ve maxed out your credit card, and you can’t even afford the minimum balance on your statement anymore. When you start missing payments, you get hit with penalty fees and maybe an increase in your APR. Soon, you realize that there’s no possible way you can pay off this credit card debt in the near future.
Should you default on your credit card?
You should try to avoid it, but sometimes there simply isn’t another viable option. So here is what might happen if you do default on your balance:
1. First, the good news: In years past, if you defaulted on one card, your other card companies jacked up their rates. The Credit Card Reform Act outlawed that practice in 2009.
2. Your credit score is going to take a hit. Just be ready for it – especially if you need to get a loan or a mortgage soon.
3. You’ll start getting phone calls from collection agencies. When you default, your card issuer will write off your debt and sell it to a collection agency, which gets incentives for collecting as much of the debt as they can. Don’t be intimidated by collectors. You still have rights, so know what they are and be ready to stand up for yourself.
4. It will take time (probably years) to rebuild your creditworthiness. Don’t despair – just stay on the right financial path and keep plugging away. Things will turn around eventually.