Is it okay not to pay your credit card debts?
A credit card is a convenient financial product to use for everyday expenses like groceries, gas, shopping and even dining out. It can also be very handful for large purchases like a new television, travel expenses or new furnitures for the home. You do not have to bring cash with you and there are also some benefits to using a credit card.
However, mismanagement and failed payments to your credit card can damage to your credit score. And repeated missed payments has a significant impact — your credit score is your entry ticket for most of adult life.
Benefits of having a credit card
Using a credit card gives you the opportunity to build credit, earn rewards that you can use to purchase, cash-back or miles points. It is also a good protection against fraud and gives you an increased purchasing power. One of the top reasons why people get a credit card is to increase their Credit Score.
Using the credit card responsibly by making purchases with it and paying on time will show in the person’s Credit Score. A Credit Score allows any bank or lenders a view of the person’s ability to pay should a loan is placed or applied for.
What happens if you don’t pay your credit card debt
Like most financial products, credit cards are very useful when used responsibly. It can, however, turn for the worst if the credit card owner fails to make payments for purchases used with the card. Let us say that you only paid the minimum amount required for you monthly credit card bill. The remaining balance that was not paid will be carried over to the following month with applied interest fee. Every month you have a remaining balance left or late payments made and was forwarded to the next billing will incur interest and late payment fees. This will increase you credit card debt over time. That is why it is best to purchase items you know you will have the funds to pay for.
How will credit card debt affect me
Failure to pay existing credit card debt will affect your credit scores affecting any financial transactions you will be able to perform in the future. Because credit card holders uses the credit card to build their credit scores, it can give negative impact on the credit score if managed poorly. If you are not able to pay off the minimum balance in 90 days, the credit score will take a hit. This is tell the bank or any lending institutions that you are unable to manage your repayments well and may affect if your loan gets approved or not.
So if you are planning to buy or renovate you home, buy a car or apply for personal loan in the future, you have to think twice about swiping your credit card with unnecessary spending that could lead you to debt.
Will I go to jail if I can’t pay my credit card debt?
According to the Bill of Rights, Article III, Section 20, of the 1987 Charter states that “No person shall be imprisoned for debt.” Non-payment of credit card debt will not land you in jail according to the Philippine law but it will be regarded as a civil case because of it and not a criminal offense. However, if proven that there is fraudulent transactions made with the credit card, this can be subjected to criminal prosecution with corresponding jail time.
How to manage a credit card debt
Call your bank or the credit card company and ask that your credit card be closed or set to inactive. This is one way to stop you from using it and racking up the bill that you are already unable to pay.
You can then avail a credit card amnesty program that allows you with unpaid balances to settle their debt at a lower interest rate and a longer repayment term. This can help you get back on track with your finances and improve your credit standing.
How to use the credit card responsibly
Credit card allows you to spend money that you may not yet have in your wallet, this gives you an increased purchasing power. It is essential for the person to consider how they plan to pay the payments of the expenses made. A good rule of the thumb is to only use the credit on necessary items and to not use it for impulse purchases. Only use it for affordable items that you can pay of when the bill comes.