A default notice arriving in the post is a wake up call for borrowers signalling they are teetering on the brink of financial disaster.
The notice is a formal warning from a lender pointing out you have breached the terms of a credit agreement - and that they intend to take action to get their money back.
Generally, a notice does not arrive until at least three payments have been missed against a loan, overdraft, catalogue or credit card.
The point of the notice is to draw a line between poorly managed borrowing and a delinquent account.
The lender will also probably demand a sizeable amount of cash to be paid in 14 days or so to put the account back in to credit.
A default notice also flags to other important actions:
• The lender will stop access to credit on the account, so cheques will bounce or ATMs and retailers will decline payments
• A default is registered on a borrower’s credit file and can stay there for up to six years. The letter acts as a red flag warning other lenders that a borrower cannot maintain their account.
Many borrowers ignore default notices at their own peril.
A default notice is the first step by a creditor to take formal court action to recover a debt or property bought with credit, like a car.
Although many banks and building societies might put off this action, a borrower really must face reality when receiving a default notice and start sorting out debt problem s.
Before talking to a creditor, it’s a good idea to take stock of your finances debt repayment options with a finance professional.
What happens next depends on a borrower’s personal financial circumstances.
Put simply, the default debt can either be repaid or not - and sometimes lenders will accept a reduced payment to clear the money owed.
If the debt cannot be repaid, then you need to discuss your finances with an adviser who will present you with options to resolve the problem.