Credit card debt is now becoming one of the factors that is considered widespread among the American population. The total revolving consumer credit as of 2024 has risen to over $ 1 trillion with the average credit card outstanding balance per household at $ 5,525. This debt is rather burdensome, and thus, some people think about “getting rid of the debt burden” by charging off on credit cards or filing for bankruptcy. However, is it legal to entirely avoid paying credit card bills, let alone wise to do so? In the following article, the reader will explore the consequences and options to think through before opting for credit card debt repayment.
Default on credit cards is never a wise decision and it is accompanied by certain repercussions that every holder should know
Although it might appear to be the best solution for overseeing credit card debts, some consequences come with ignoring the debt which might worsen your financial status. Here are some of the most common ramifications of walking away from what you owe creditors:
Damage to Credit Scores: Defaulting will greatly affect your credit ratings because these are the main tools that help lenders determine your creditworthiness for future loans or credit cards. Credit reports cannot recover from default and can easily be dragged down by 150-200 points or even worse depending on the credit reference agency used. Low scores affect your ability to secure credit or rental lodging at reasonable rates since the approval chances are low.
Aggressive Collections Efforts: Creditors are in a position to ensure that they recoup the loans they have been provided through the use of aggressive debt collectors. For example, you can be called frequently, letters may be sent requesting repayment, legal action may be taken or wages may be garnished if you do not heed collection attempts.
Continued Interest and Fees: Even in the case that you are charged with a penalty for defaulting, additional interest and late fees will continue to be charged on the amount that you owe. This is because it can trigger a rapid increase in your total amount of debt even as your creditworthiness declines.
Long-lasting Credit Damage: Items like defaults are also reported and remain in the credit reference lists for a maximum of 7 years. It could therefore prove very hard to obtain cheap credit during that period because you are considered to be high risk.
As you can now deduce from the continuous analysis, avoiding credit cards in a quest for financial relief is hardly ever possible since the credit and collections implications are too massive. Those who try to manage high balances often face serious problems, but there are always more effective ways of handling credit card debt.
Credit card debt can be avoided by coming up with the following options as an alternative to defaulting.
Rather than resorting to default or bankruptcy, here are some smarter strategies to tackle overwhelming credit card debt:
Seek Credit Counseling: Credit counseling agencies, which are non-profit organizations, can help review your budget, negotiate between you and your creditors, as well as place you on a more feasible payment plan. This can lower interest rates and give scheduled payment options without having to bankrupt: Banks and other lending.
Apply for a Balance Transfer Card: Balance transfer credit cards have an intro 0% APR period that lasts a limited time of 12-21 months. Paying balances on one of these cards helps reduce interest charges as you gradually pay your due amounts. The only thing that is not as good is an interest-free period where users should ensure they clear balances before the 0% rate expires.
Take out a Consolidation Loan: Debt consolidation loans provide an opportunity to combine many credit card balances with high interest rates into one personal loan with a lower fixed rate. This makes debts more manageable by easing the interest cost and allowing the customer to make one monthly payment on a fixed repayment schedule.
Tap Home Equity: If you as a homeowner have a lot of equity in homeowners’ houses, a home equity loan or line of credit may offer lower-cost solutions to pay off credit card balances. This helps to bring down unsecured credit card interest rates using the equity on your home as collateral.
However, sometimes getting out of credit card debt may feel out of reach, but it is not a solution to walk away. It is always possible to turn to non-profit credit counselors, manage a balance transfer offer, get a consolidation loan, or use the home equity to find other ways to improve your financial situation and avoid your creditworthiness is damaged in the long run. When choosing a course of action in matters that may affect your finances for several years, always make sure that you consider all the facts before making your decision.
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