Credit Card Help with Terms for Defaulted Cards
Learn About the Terms Banks Use when a Cardholder has Defaulted
Nov 15, 2009 Armand Famiglietti
Life can catch all of us by surprise when unexpected expenses suddenly pop up. The trouble occurs when one can’t figure out how to pay for those expenses and charges them on a credit card. Charge too many of those sudden expenses, and suddenly that credit card is maxed out.
Here is a look at a glossary of potentially unpleasant terms that a cardholder may come across as they max out their credit card and begin to miss the minimum monthly payments.
Zombie Debt
Zombie debt, though a seemingly strange sounding term, can actually be a credit cardholder’s best friend. Zombie debt refers to debt that is so old that a collection agency can no longer legally collect on the debt. Every state has a different statute of limitations on unsecured debt.
These time periods range from 3 years to 11 years. Check the state requirements, and if the debt falls outside of that range, then one can simply tell the collection agency that the collection of the outstanding debt is no longer legally enforceable.
Wage Garnishment
Wage garnishment occurs when a collection agency obtains a court ordered judgment against a account holder to repay outstanding debt. Not every state allows wage garnishment for credit card or unsecured debt. Check the state law for further information.
Default APR
The default APR (annual percentage rate) refers to the APR that will be charged to the cardholder if they miss a payment because they have “defaulted” on their cardholder agreement. Some credit card companies go right to the default APR after just one missed payment, while other credit cards will give a little more leeway. The default APR is usually quite a bit higher than the standard APR ranging from 28 to 33%.
Debt Consolidation
Debt consolidation is a process by which a debt consolidation company combines debts from multiple accounts and creates a single payment for the credit cardholder who is in debt. This is a viable option for someone who has several credit cards with high interest rates. The company pays those credit cards on behalf of the credit cardholder. In turn the credit cardholder makes a single payment each month to the debt consolidation company.
Universal Default
Universal default is an action that occurs when a credit cardholder misses a payment or “defaults” on a single credit card account. The other credit card companies which that cardholder has an account with, then scans his or her credit report in search of defaulted payments. Once they spot a defaulted payment, the other credit card companies then raise the interest rate on all of the accounts held by the user. In this manner, the default was “universal.” It should be noted that several credit card companies have done away with this practice.
Learn About More Credit Card Terms
Check out this article on basic credit card terms for more information and definitions as well as this article that defines terms for student credit cards.
A Credit Card that has been Maxed Out
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