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Options for Dealing With Credit Card Default

By Poshita Bhatt - Jan 19,2022
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In dealing with the aftermath of a rough financial patch in your life have you ended up defaulting on your credit card? Or has irresponsible spending added up to dues that now make you worried that your credit score might take a severe hit? Don’t worry, we might have some solutions that can help you evade a fiscal crisis. But first, let’s find out what a credit card default really means.

Credit Card Default

When you get a credit card in your name, you agree to certain terms of the issuer. For example, you accept the condition of making a certain defined minimum payment by the due date listed on your credit card statement. If you miss the minimum payment several months in a row, the status of your credit card will be said to be in default.

Unpaid dues compounded with fresh credit card transactions can attract huge financial charges with interest rates that might be high (around forty per cent). Dues may also lead to lowering your credit card score, which directly translates to a bad reputation and difficulty borrowing in the future.

The Options

You may want to try out the following options if you have found yourself caught in the debt trap:

  • Pay in full (if you have funds available)

If you can, pay in full for the dues in a one-time payment. Also, negotiate for a ‘pay for delete’ according to which your credit card company will erase the account of debt from your credit card report as a complimentary benefit in exchange for the payment. This is not a surety, but it is definitely worth asking for as it helps you wipe off your record as a defaulter.

  • Rework your outstanding balance into EMIs

Check with your credit card issuer if they offer the facility to convert your outstanding balance to EMIs. Paying up this way, over an extended period, with the total amount divided into smaller chunks may make it easier for you.

It is important for you to note here that most banks that would offer you this option will charge you an interest rate for the conversion of your outstanding amount into monthly EMIs, which will be included in the instalments itself. The good part, however, is that the rate of interest on EMIs is likely to be far lower than the finance charges that you would have otherwise paid on your unpaid dues.

Try to opt for the shortest possible tenure to repay the amount through outstanding EMIs. This way you will end up with the lowest rate of interest as it varies according to the tenure chosen.

  • Transfer your balance to another credit card provider

This type of balance transfer facility allows you to transfer your existing dues to a different credit card from another bank or company where the rate of interest to be charged on the outstanding amount might be less. Do cross-check the fees and charges associated with such a transfer as you may be asked to pay a minimal interest rate for a particular period called the ‘teaser rate.’

  • Apply for a Personal Loan (at a lower interest rate)

To dodge the high rate of interest on your credit card dues that are likely to burn a big hole in your pocket a smart choice is to take a personal loan that pays off your dues. This is most likely to benefit you as most credit card providers charge a high-interest rate of about 40-45 percent per annum while a personal loan obviously comes at a much lower interest rate.

  • Try to settle the debt for a lesser amount

It does not hurt to try to persuade the creditor to settle the debt for a lower amount than what they might have quoted. This is not an uncommon practice and allows the accounts to become clear without unnecessary dragging on to longer and higher payments.

Conclusion

Though a credit card default is a matter that requires immediate attention, it is not a rare event, and you need not panic unnecessarily. The right approach is to come up with a strategy that allows you to pay off the debt as early as possible without the sum compounding and with the lowest risk to your finances.

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