With the economy continuing to slow and more companies planning to lay off employees or cut hours, many people are finding that they are becoming delinquent on their credit card payments because of their reduced income. Because they have not been in this position in the past, they do not know how their delinquent payments will affect their credit profile and their current financial situation. The actions of the credit card company will depend on the timeline of the delinquency, but here is what you can expect in most cases.
Delinquent Less Than 90 Days
If you have been delinquent on the account for less than 90 days, you can expect to receive phone calls and emails from the credit card company to find out why you have not made your payments. If you are facing a significant financial hardship, such as the loss of a job or a divorce, now is the time to tell the credit card company representative and see if they have any programs that could lower your payments until you are able to get back on your feet financially. Your credit score will take a hit once the missed payments have been reported by the credit card company.
Delinquent Between 91 And 180 Days
Most accounts that have been delinquent for this long are transferred to a recovery department that is trained to deal with distressed debtors and offer supplementary repayment solutions, including workout plans and settlement offers. If the debt is settled, the borrower can reasonably expect to pay 40 to 50 cents on the dollar for the debt, but the fact that the debt was paid back at a lower rate is reflected on the borrower’s credit history and their credit score will be negatively affected. In most cases, the borrower can pay a settlement in three monthly installments.
Delinquent Between 181 And 365 Days
If your debt has been delinquent for more than six months, the credit card company will generally charge off the debt and receive a tax break worth 35% of the charged-off amount. The damage done to your credit score by a charge off is about the same as the damage down when you settle the debt for less than you owe. The debt is then transferred or sold to internal or external debt collectors. Collectors may be willing to settle your account for less than the original creditor or they may be prepared to sue you for the debt. If you do get sued, your only option may be to seek the protection of bankruptcy court.