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What does a default on a debt mean?

Posted 03 July 2016

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It’s so important not to ignore defaults. Learn what they are and how to deal with them here. What does a default on a debt mean?

In today’s blog, we’re taking you through what it means if you have a default on a debt. If you’re struggling with your debts and you’ve received a letter telling you about a default you may be worried and, understandably, asking some questions about what this means for your financial future. 

Hopefully, by the end of this post you’ll have a better understanding of the position you’re in, and the best way to move forward. 


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What does it actually mean?

A default means you have not kept to the original credit agreement you signed when you first borrowed the money. Let’s say you had a credit card, for example. The credit card provider will expect you to make at least the minimum payment each month, and if you fail to make these for a certain amount of time, they will issue a default on your account, which means they consider the agreement to be officially broken.

Defaults are only issued for debts that are regulated by the Consumer Credit Act

When is a default issued?

Creditors won’t just issue a default if you miss one payment. You normally have to miss between three and six payments before you get one. Exactly when you’ll get a default depends on the policy of the specific creditor. 

If you start a debt solution, like a Debt Management Plan, your creditor can sometimes issue a default at this stage because you will be paying less than you originally agreed to. 

What is a default notice?

A default notice is the letter you receive which informs you about the default on the account. It should state clearly that it is a default notice, and also tell you what the creditor wants you to do to put things in order. 

In the letter they may ask you to repay the full amount owing (or a large amount of it). They will also tell you how long you have to respond to the notice – this is normally 14 days. 

Of course if you have missed payments, it is highly unlikely you’ll be able to afford to pay the amount that they ask for in the default notice. We’ll go through what you should do about this a little later.

If you have found yourself with a default and you don’t remember receiving the notice in the post, it’s possible the creditor has sent it to a previous address. From the creditor’s point of view, they will consider you warned about the default if they send the letter to the most up to date address they have for you on their systems.

What will my creditor do if I get a default?

Your creditor can do one of a few things when you get a default. They can pass the debt onto a collection agency or department, take court action, or take goods back if they were part of the credit agreement.

If they pass the debt on, the collection agency will now be responsible for trying to get the money back. These agencies can either be a separate company from your original creditor, or they can be a separate department within the same company.

The creditor can only take goods at this stage if they formed part of the original credit agreement – for instance, your car if you defaulted on your hire purchase agreement. 

Will it affect my credit history?

If you end up with a default, it will show on your credit history and have a negative effect. It will impact on whether or not you can borrow in future and if you can, what rate of interest you are offered. 

A default will remain on your credit history for six years from the date your lender first issued it. Any potential lenders or service providers will use your credit history, as well as their own criteria, to help them decide whether to lend to you or not. 

If you are able to do what the letter asks within the allowed time period, it is possible for you to get the default removed from your credit history. If this happens, write to the lender and explain the situation to them. You can also contact the credit reference agencies – Experian, Equifax and Callcredit – and ask them to remove the default. You may need to contact all three agencies as they might not all have the same information. 

What should I do if I get a default?

Never ignore a default. If this has happened with one of your accounts, it’s a serious sign that you aren’t able to keep up with the debt and you need to address the situation. 

The first thing you can do is contact the creditor and explain what happened. Sometimes a creditor will only issue a default because they haven’t heard from you and don’t understand why the payments have stopped. 

Picking up the phone and explaining your current situation will be the first step to getting that debt back under control. It is unlikely that a creditor will remove a default just because you’ve got in touch with them, but it’s still very important that you do because they might be able to put a plan in place to help you. If you can, call them and explain why you missed the payments, and how you intend to catch up with them. 

It may be that you won’t be able to afford your repayments for a while. In some cases, creditors are able to stop your payments for a while, reduce them, or freeze interest and charges for a certain length of time. 

Getting outside help

Some people don’t feel confident speaking to their creditors. This might be because they are afraid of what they’ll say, or because they are unsure when they’ll ever be able to afford the repayments. 

The good news is that there is lots of free, outside help available if you have a default or have missed payments. Our advisors at Debt Advisory Centre help people struggling with debts on a daily basis and they will be able to tell you the best thing to do. 

There are fees for some debt solutions, but the initial expert advice we give is always free of charge. You can get in touch with one of our advisors today using the options on the left. 

There’s also free and impartial debt advice available from various debt charities and the Money Advice Service

Even if you’ve received a few defaults or letters about missed payments, there is always a way out of problem debt. Make sure you get the advice you need so you can stop the problem getting any worse. 


by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.