Failing to pay your credit card debt can have grave and far-reaching consequences for you. These can affect not only your personal finances but also many other facets of your life, such as the ability to secure a new job or your chances for a mortgage loan approval. Credit card companies have many options to make debtors pay. So, if you owe money on your card account, it will be best for you to pay it down as soon as possible or at least seek some debt expert advice. Otherwise, you may soon find yourself dealing with adverse effects as penalty fees, increased APR, harassment by collection agencies, and legal action against you.
Penalty Fees
In general, credit card issuers impose a late payment fee whenever the holder fails to make a monthly payment on time. On top of that, if you have exceeded the credit limit with your last purchase, you will also be charged an over-the-limit penalty. These sums will be added to your outstanding balance, bumping up your current debt.
Increased APR
Many banks hike the interest rate applicable to an account if the cardholder has defaulted on a preset number of payments. For example, MBNA raises the APR on its Platinum Plus MasterCard with 5 per cent if the card owner misses on a monthly payment more than once within a period of twelve billing cycles. An increased APR means, of course, a higher overall cost of your transactions the next time you decide to use the card.
Dealing with Collection Agencies
If you do not pay down your debt by a predetermined date, the bank will transfer your case to a collection agency, which will start calling you regularly and demanding that you pay your dues. Under the best scenario, you will have to at least agree to a settlement plan. Even though you will be the weaker party in this communication, keep in mind that you still have rights, and the collection agency must comply with certain province-specific regulations. According to the rules applicable to Ontario, for example, the collection agency may not harass you or your family (e.g. by calling several times a day). It may not call you on a statutory holiday or more than three times within a week; and it may not demand information from your friends and relatives other than your address and telephone number (Money Problems). If you feel your rights have been violated by actions like the above, refer to the respective authorities for assistance.
One important piece of advice: when the collectors start calling, do not ignore them. You may be able to stop them in this way; however, you will also give them grounds for the next debt collection measure, i.e. legal action.
Legal Action
If the creditor cannot collect its money by other means, it may initiate a lawsuit against you and request from the court a garnishing order to take out money from your wages and bank accounts. If such an order is granted, you may lose up to thirty per cent of your wages for a given pay period as well as some or all of your bank savings (The Canadian Bar Association).
Bad Credit Reports and History
Defaulting on your card payments will inevitably lead to bad credit reports, which will mar your credit history. As a result, your chances to, among others, secure employment, obtain a larger loan, or receive favorable insurance rates may be severely damaged. If this is the case you may not have a choice, but to apply for bad credit loans.
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