Most people go through a financial rough patch at some point in their lives, whether it’s due to a job loss, an unexpected illness or injury, or a major expense like unplanned car repairs. But a difficult situation can turn even grimmer for those about to default on a bad credit credit card, as it can lead to several long-lasting consequences.
Here are three things you need to know about defaulting on a bad credit credit card.
1. It might be tough to obtain credit again
Just like with any credit card, the issuer of a bad credit credit card reports your monthly payments to all three major credit bureaus: Equifax, Experian and TransUnion.
If you’re responsible and pay on time, your credit score will improve. If you fall behind on payments, you’ll receive negative marks on your credit.
But defaulting on a card means that you are unable or unwilling to pay the amount of principal and interest owed by the agreed upon due date. Essentially, you are walking away from your debt. As a result, your credit score will be damaged, possibly beyond repair, and you may not be able to obtain credit in the future.
2. You’ll lose your security deposit
When you signed up for your credit card for people with poor credit, you were required to make an initial deposit that served as both a credit limit and collateral for your card.
Defaulting on your secured credit card will result in your losing this money, which is typically $250 or $500.
3. Do your best to avoid defaulting
If you think you may be heading toward default, you should communicate with the lender as soon as possible to explore possible options.
Call the credit card issuer and be honest. Tell it what’s holding you back from making full payments, and negotiate a hardship plan if you can. It will likely rather work with you than have to deal with the default process, which can be costly and time consuming.
For example, if your account is 30 to 60 days late because you lost your job or are sick and can’t afford to pay, the credit card issuer might be able to get you on an assistance program in which you make smaller monthly payments until you get back on your feet.
It’s also a good time to take a hard look at your budgeting and spending habits. A credit counseling agency would be a good place to start. It can help you determine the best way to manage your money and prevent future financial problems.
You can search for credit agencies that are certified by the National Foundation for Credit Counseling through NerdWallet’s Ask an Advisor platform.
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