What to know if you default on your credit card

Maybe you have recently fallen into a financial rough patch due to an unexpected job loss, leaving your credit card debt to rack up. Or perhaps you have overlooked some of your bills because of a medical or family emergency. While it may feel like the rest of the world should stop when we enter a time of hardship, the unfortunate reality is that credit card payments, among other debts, keep coming due.

When you do not make payments on your credit for long enough, whatever the reason, one effect you may face is credit card default. If this has happened to you, first know that you are not alone. Lately, "with high levels of credit card debt and high inflation," more and more people have "found themselves unable to cover monthly payments," leading credit card defaults to reach their "highest level in 14 years," said The Associated Press.

Once you start understanding the potential implications of credit card debt, you can focus on your options for getting out of it.

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What does it mean to default on a credit card?

A credit card default occurs "when a cardholder fails to pay their debt for an extended period," usually around six months or 180 days, said Business Insider. At this point of non-payment, your issuer "can (and usually does) close your account, write off what you owe as bad debt and sell your account to a collections agency," which now owns your debt, said NerdWallet.

Default is not the first step a credit card issuer will take if payments are not made. Before you reach the point of credit card default, your account will become delinquent. Delinquency "happens after missing a payment for 30 days," said Bankrate, whereas default is the result of a longer failure to make payments on the debt owed.

What are the consequences of credit card default?

One of the primary consequences of defaulting on a credit card is that you will "start getting flooded with phone calls asking you to pay the bill" from the collector that now owns your debt, said NerdWallet. This could escalate if you ignore the debt collector. "Eventually, the debt collector could sue you for what you owe," and "if they win the lawsuit, a judgment will be issued against you, and your wages could be garnished."

Beyond that, said NerdWallet, your credit score "will take a nosedive, and the blemish will stay on your credit report for up to seven years." Even if you are not planning to apply for a new loan any time soon, this mark on your credit report can still wreak havoc. For one, it is "common (it used to be virtually guaranteed) for employers to pull a credit report as part of the interviewing process," and "a string of delinquencies or defaults could make you less competitive," said Bankrate. It could also make it harder for you to secure housing if you are a renter, as credit checks are common in the application process.

Further, your credit card account will likely be closed when you default, which "affects your credit by limiting the total amount of credit available to you" and also negatively impacts your score, said Bankrate. On any new lines of credit you are able to access in the future, you "will likely pay a higher interest rate," said Business Insider.

How can you get your credit card out of default?

"The first step is to be proactive," said the AP, citing Matthew Sotir, a financial advisor with Equitable Advisors. "If your account goes to a collections agency, find out if they can offer a payment plan or seek help from a non-profit credit counseling organization or financial advisor."

Depending on your situation, you may be able to negotiate a plan to pay back the debt in full over a series of installments. Or, you could attempt to settle your debt, wherein you would only pay back a portion of the total amount owed.

If you are not yet in default but feel like you are quickly sliding toward that point, contact your credit card issuer. "Most creditors have systems in place to reduce your payments, at least for a short time," said Bankrate, which "may be enough to get you through to the other side."