Ten things you need to know about credit card debt

We highlight what could happen if you fall behind on credit card payments...

There’s much less stigma attached to debt these days and as a consequence, people are a lot more blasé about missing payments, not realising what can and can’t happen.

In a previous post, we talked about how the father of Charles Dickens went to prison for owing the baker £40 back in 1824. But as we pointed out then, times have changed…

According to Credit Action, the total value of all purchases made using plastic cards today and every day is £1,156,000,000.

Are you one of these people that make card transactions and do you realise what could happen if things took a turn for the worse?

Like we reported in our latest infographic, the main causes of debt for our clients are pay cuts or job losses, and with 1,392 people being made redundant daily, it’s something that could affect any one of us.

With this in mind, here are ten real consequences of falling behind on credit card debt. You may think this doesn’t apply to you, but like we’ve mentioned before, debt can affect anyone

1. Letters and phone calls

If you start to fall behind with debt repayments, creditors will call and send letters which can become more threatening

Most creditors prefer to use phone calls as it is easier to put pressure on you to make payments this way. 

Creditors can contact you if you do not pay your monthly payments but they must keep to the rules set out by the Office of Fair Trading. You may find it useful to read the Office of Fair Trading (OFT) guidelines which creditors have to follow.

Often creditors will describe ‘possible’ action rather than what they are actually going to do. If you read these letters carefully you will usually find they refer to actions they ‘could’ take or ‘may’ take. That doesn’t mean they won’t do anything though!

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2. Default notices

A default notice is a formal letter telling you how much to pay to bring the account up to date and when you need to pay.

Your creditor will usually send you a default notice after three to six missed payments. You are given at least 14 days to pay.

A default notice will also warn you that if you can’t pay, your account will be cancelled and be ‘defaulted’. This’ll mean you can no longer use this facility to borrow money. The creditor can then:

• Demand the full balance is paid immediately
• Sell the debt to a collection agency
• Begin court action to recover the debt.

If you pay back the arrears within 14 days then no further action is taken. If future payments are missed then a default notice can be issued again.

3. Debt collection agencies

Many creditors don’t want to deal with defaulted accounts in long-term arrears and they usually pass this onto collection agencies.

Once a debt passes onto a collection agency you pay them directly and in some cases the agency can stop interest and charges.

Collection agencies are not bailiffs and they don’t have any more legal powers than the original creditor. Collection agencies still have to follow Office of Fair Trading (OFT) guidelines on fair debt collection.

4. Door stops collectors

It is possible for a debt collector to call at your house in person; however this is rare as home visits are more costly for the collection agency than letters or telephone calls.

Like collection agencies, it’s important to remember that debt collectors who call at your house are not bailiffs. 

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Home visits are more likely from debt collectors who provide doorstep loans or other forms of credit (where you are dealing with an agent or local branch rather than a national collection department).

5. Interest and charges

If you fall behind with your payments or go over the limit you are allowed to borrow, you will be charged a fixed penalty by the creditor on top of your normal interest charge.

This can increase your debt quickly if you miss the required payment each month.

Creditors have the right to add charges and interest. All charges that can be added are stated upfront in the terms and conditions of the credit application which you are required to sign to take out credit. If you believe a creditor has added the charges unfairly, you may be able to claim these back.

In most cases, there is nothing you can do to stop interest and charges being added. However, if you make reduced payments over a long period of time, usually several months, most creditors will eventually stop charging interest and adding late payment charges.

6. County Court Judgements (CCJs)

A County Court Judgment (CCJ) is registered when you receive a letter titled ‘Judgment for Claimant’ This will be recorded on your credit file.

This will specify a monthly instalment or ask you to pay the full amount immediately or ‘forthwith’.

They will ask for a copy of your income and expenditure and a realistic offer of payment. If you make the payments as instructed, no further action should be taken.

If you do not make the correct payments on time, the creditor can ask the court to take further enforcement action.

7. Attachment of earnings

If you fail to respond to county court paperwork or fall behind with CCJ payments, this is an order which allows the creditor to take instalments from your income.

If the order is granted, the court will contact your employer and payments will be taken from your wage along with a £1 administration fee each time.

8. Charging Orders

This is an order from the court that allows the creditor to place a charge on your property.

This means that the debt is secured against your property. You are also required to pay a monthly payment towards the debt. If you sell your house and you still owe money on that debt, the balance is paid off using the proceeds of the sale. 

A creditor can apply for a charging order if you’ve missed payments on a CCJ or the CCJ application asks you to pay immediately or ‘forthwith’ and you have not asked the court to change this

Although a charging order is normally applied to your home, it can, in rare cases, be attached to shares or other property.

9. Bailiffs

Bailiffs will only be instructed if you’ve fallen behind on or have ignored a CCJ.

They are there to recover the money, whether this is by a payment arrangement or by taking goods from the property and selling them at auction to pay off your debt. 

They can’t break into a property unless they have already been allowed in or entered through an unlocked window or door on a previous visit. Once a bailiff has been invited into a property, they have ‘walk in possession’, which means they can enter again at any time.

They can’t take goods on the first visit but will usually make a list of items which they can take in the future. It’s an offence to remove any of these items once this has been done.

10. Bankruptcy

In very rare cases, a creditor may attempt to make you bankrupt to recover the money from any assets you have, such as your house or savings.

The effect of this is the same as declaring yourself bankrupt, but the creditor pays the fees. 

The most common way for a creditor to start bankruptcy proceedings is to issue a document called a ‘statutory demand’.

Creditors sometimes issue statutory demands as a threat and may have no intention of making you bankrupt, but you must not ignore it. The effects of bankruptcy are extremely serious - for example you could lose your home and other assets. 

Act now

If you’ve experienced any of the above, or feel like you could have problems managing your debt in the future, visit our online counselling service or call our free helpline for further advice.