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If you have defaulted on your credit cards by not meeting your minimum payments or by not paying them on time, you might be placed in default status by your credit card company, which can have consequences on your credit history and your interest rate. This page provides some tips on how to overcome defaulting on credit cards.
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Disclaimer
The content in this page is not a substitute for professional financial advice. Please contact your doctor before using the information presented here.-
Introduction
- Entering into default on your credit card typically mean that you will be charged a late fee for the delayed payment and your interest rate will dramatically increase for the next few months. Credit card default usually also impact your credit history and credit score negatively.
Step 1: Paying off the Debt
- The first thing you should focus on if you enter into credit card default is to pay off your debts. Pay off as much as possible, but always at least the minimum balance due on your credit cards. Avoid using credit cards to prevent your debt from decreasing. Learn more by visiting Mahalo's pages on How to Make a Budget and How to Curb Your Spending.
Step 2: Negotiate Rates
- While you continue to pay off at least the minimum balance on your credit cards, consider your options if you are having trouble to pay off the rest of the balance. One option that you should try is to explain to your credit card company that you are having trouble paying of the debt and ask for a lower rate. It doesn't hurt to ask, and some companies will give you a lower rate if you ask for it.
Step 3: Move Balances
- You might want to move some or all of the balance to a new credit card with a lower interest rate.
- Many credit cards offers 0% APR for the first months when you open a new card.
- Be careful of these offers, however, as interest rates sometimes become very high after this period ends.
- Some institutions charge a fee for transferring your balance.
Step 4: Improve Your Credit History
- Most likely, the defaulting on your credit cards have impacted your credit history and credit score negatively, especially if it was not the first time. If so, you will have to take steps to improve these. While paying your credit card bills on time is the most important step to take, there are also other things you can do.
- Don't open up too many credit cards at the same time.
- Monitor your credit score by getting a credit report on a regular basis.
- Don't close accounts to improve your credit history. Your credit history is partly based on how much credit you have available (not used) on your cards. Reducing the number of cards you have without paying of debt can lower your credit score.
- There are many other ways to improve your credit history. Consult a financial adviser for guidance.
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