Learning to use credit wisely is one of the most important financial lessons. It's tempting to max out a card for purposes of instant gratification, but if you can't pay your credit card bill, life can start going downhill pretty quickly. Not only can you ruin your credit score, but you could end up in court, facing a judgment.
If your payment is 30 days past due, credit card companies start sending notices of your delinquency. You might receive calls or emails. When a payment is 60 days past due, your account is turned over to the collections department. At that point, it's likely the card issuer informs the credit bureaus of your delinquent status. At 90 days past due, your account is probably closed by the credit company. A debt collector hired by the credit card company starts hassling you for payment.
If you default on your credit card bill, prepare for hounding by debt collectors. Although federal law prohibits some of the worst practices -- such as incessant calling or threatening behavior -- debt collectors can call you at work. To get them to stop, you must tell them or send them written notice to stop calling your place of employment. However, if your debt is legitimate and you don't pay up, you could find yourself facing a lawsuit.
Credit Card Lawsuits
Once you receive the notice that a lawsuit has been filed, take action. If you don't have the money to pay off some of the debt -- usually at least 60 percent -- see if you can borrow funds from family and friends. If that's not a possibility, consider filing for bankruptcy. A bankruptcy lawyer can advise you about options. Whatever you do, don't ignore the lawsuit. Doing so means the credit card company will almost certainly receive a judgment against you in court.
Credit Card Judgment
If the credit card company prevails in court, you'll receive a judgment against you. Not only will you owe money to the credit card issuer, but you're on the hook for interest and related fees. The card company might garnish your wages, meaning that a certain percentage of your paycheck goes directly to them. That also means your employer knows about your debt problems. If you have money in a bank account, the creditor can go after those funds. Your creditors can put a lien on any real estate you own, so that if you sell or refinance the property, they are paid out of the proceeds.
Bad Credit Score
While it could be the least of your worries at the time, a credit card default severely harms your credit score. That means financing a car or house is likely out of the question, at least for a few years.
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including Sapling, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.