NEW YORK (AP) — Americans are increasingly defaulting on their credit cards, reaching their highest level in 14 years. U.S. credit card defaults soared to a record $46 billion from January to September 2024, the Financial Times reported, citing data analyzed by BankRegData.
high level credit card debt Inflation and high inflation have left many consumers unable to meet their monthly payments, leading some to default on their debts.
A borrower defaults on a credit card if he or she is behind on his or her credit card payments for more than 180 days, or approximately six months. Matt Sottile, a financial advisor with New Hampshire-based Equitable Advisors, said that when a payment is missed for this long, banks typically take it as a sign that the borrower won't make any more payments.
Defaulting on credit cards can have serious consequences, including negative impacts on society. credit report That will have long-term effects on people's ability to borrow money, Sottile said.
“These are debts that have a huge impact, and I think sometimes people don't realize how much of a negative impact it can have in other areas if you miss[payments],” Sottile said. added.
Here's what you need to know about credit card defaults.
What does it mean to be late on a credit card payment?
There are several levels of repercussions when a credit card payment is not made. It starts with late fees, high interest rates, and potentially low credit scores. If a borrower does not pay for 30 days, the bank may mark the credit card as “delinquent,” further damaging the borrower's credit score.
According to WalletHub writer Chip Lupo, if a borrower doesn't make payments for about six months, banks will mark the card as in default, close the account, and refer you to a collection agency.
“That's where we're going to have a really hard time getting credibility going forward for a while,” Lupo said.
Once a collection agency takes over your debt, they will contact you by phone, email, or mail to encourage you to repay your debt. Ultimately, if payment is not made, the collection agency may take legal action against the borrower.
What should I do if I miss a credit card payment?
The first step is to be proactive, recommends Sottile. Whether it's contacting your bank or working with a financial advisor, the sooner you start looking for a viable solution, the more consequences you can avoid.
“I've seen it over the years that when someone faces a problem, it's easy to fall into a cocoon and not want to deal with it,” Sottile said.
Sotir and Bandebo recommend contacting your credit card company to negotiate the debt because it's in the bank's best interest to recover the debt. If your account is in the hands of a collection agency, find out if they can offer payment plans or seek help from a nonprofit credit counseling organization or financial advisor.
