What are the Consequences of being a Credit Card Defaulter?

20 DECEMBER, 2021

Users can make purchases on credit through credit cards. If you fail to repay the spent amount that comes to you, like your credit card bill, you become a credit card defaulter in the time given for an extended period. For example, if the credit card holders have not continuously made payment for six months, they will be termed a defaulter, and their account is deactivated.

How You Can Become a Credit Card Defaulter

While signing up for a credit card in India, you agree to various terms and conditions written on official documents given by your bank. If you don’t follow them, your credit card account can be deactivated and reported to the credit bureaus. Therefore, it is essential to prevent this from happening-

Over expenditure-There can be times when you would spend almost your entire credit limit and then not repay the amount. Hence, it is necessary to limit your expenses and make sure that you don’t spend more than 60% of your credit limit to repay the amount later.

Missing due dates-Not paying your credit card balance on time harms your credit card score. Even if you miss a single payment, it’ll reflect in the report. Your credit score can be low because not paying your bills on time affects your credit history.

Procrastination-Some people tend to wait till the last day to pay their bills. While it makes no difference, it is better to pay it before your due date. If you miss the due date of your credit card billing cycle, your credit score can be impacted The maintenance of credit utilization ratio is defined as how much credit is available from the given credit limit. This ratio is taken out by calculating based on the total credit limit available on all the credit cards you own.

Repercussions Faced by a Credit Card Defaulter

You should know the consequences you would have to face if you become a credit card defaulter, so you need to stay aware of your credit card billing cycle beforehand.

Negative Impact on Credit Score-Making late payments or having a few missed payments leads to a low credit score resulting in missing out on significant benefits that a credit card offers. You must have a good credit score to be eligible for a higher loan in the future. It can be done by paying your credit card balance on time.

Legal Measures-If you don’t pay your credit card bills for a long time, you will be listed as a defaulter, and as a result, the bank might take legal actions against you, making it difficult for you to take credit from another bank or financial institution

Defaulter-Not paying your pending dues before your credit card billing cycle ends for a maximum of six months will make you a credit card defaulter and lead to you being blacklisted from the bank, which results in blocking of your credit card.

Interest Rate-Not paying your credit card bills within sixty days will lead to higher interest. It is also applicable to any new purchases that you’d make with your credit card. If you keep doing this, the interest on your credit card balance would be more than your actual bill.

Acquisition of Assets-Due to non-payment of your bills, banks will be forced to withdraw from your savings accounts to clear your balance. They may also seize your properties/other assets to settle the pending dues if it gets worse.

How can you Avoid Being a Credit Card Defaulter?

Non-payment of credit cards can have a significant impact on your financial situation. These are some of the few habits that you should follow in your financial routine to avoid being a credit card defaulter Choose the auto-pay feature on your credit card’s mobile application/online portal.

Set up regular reminders for your due dates.

Do not keep waiting until the last minute to pay your credit card dues.

Pay the minimum amount due before the last date, but only if you cannot afford to pay the whole amount. You can pay the remaining amount in the interest-free period.

Personal loans have low-interest rates. You can pick one to pay your credit card dues.

You can persuade your bank to convert your pending balance into easy and affordable EMIs.

If the situation has gotten out of hand, you may file for bankruptcy, allowing you to restructure your debt, making it more convenient for you.

Conclusion

Credit cards are used by more than half of the adult population, and therefore, the number of credit card defaulters are rising. Therefore, it needs to be taken very seriously as having a good credit score can help you get cheaper loans.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.