April 26th, 2012
I can’t afford to pay my credit card bill this month. What should I do?
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It could happen to you.
You’re stretched thin. You’ve charged too many purchases on too many credit cards, and you can’t make all of your minimum payments. Now you’re faced with the decision of missing a payment or two.
What do you do?
Here are some helpful steps to take when you find yourself in a difficult financial position and can’t afford to pay your credit card bill for the month.
1. Don’t sacrifice other bills to pay your credit card bill.
Prioritize your most important payments in this order: home loan, auto loan, student loans (if you have them), and then credit cards. The consequences for missing a home or auto loan payment will be more severe than those for a credit card. For a home loan, your credit will be penalized after 90 days of late payments, and you could eventually lose your home in a foreclosure. If you pay your auto loan just one day late (though some lenders wait 60), your car could be repossessed. Both of these—foreclosure and repossession—will do serious damage to your credit health.
As far as student loans go, becoming delinquent also has a lasting effect. Since federal student loans can’t be discharged in bankruptcy, it’s best to keep those current or you’ll be saddled with the consequences indefinitely and may have your wages garnished. All of these are worst-case scenarios, but they also all start with just one missed payment.
2. Ask about grace periods.
If you know you can’t make the card’s minimum payment at the end of the month, dial up your credit card issuer and talk options. Some credit card companies have grace periods after the due date for your bill. The grace period will give you a few more days to get the cash without suffering the penalties of a late fee.
3. Ask about reduced minimum payments.
Your credit card issuer may grant you a reduced minimum payment for a period of time as a part of a hardship program. Show that you’re experiencing temporary financial difficulties, such as unemployment or unexpected medical bills, and also demonstrate that you’re working to remedy the situation within a few months.
4. Know that your credit might not suffer.
For most credit cards, late payments usually aren’t reported to the credit bureaus until they are more than 30 days late. And it typically takes 180 days of missed payments for your account to be “charged off” and sent to collections. As long as you get your bill payment in before that 30 days is up, the delinquent payment will likely not show up on your credit report, but you will be facing a late payment fee upwards of $25.
However, don’t make it a habit of paying your credit payment 29 days after the due date knowing your credit score may not suffer; frequent late payments may result in other negative consequences, such as higher interest rates or lower credit limits. And as far as how late payments can affect your credit score, a 30-day late payment can knock 60 to 80 points off of a 680 score, or 90 to 110 points off of a 780 score. You can see how these scenarios might affect your credit with the Credit Simluator.
One late credit card bill payment isn’t the end of the world, but it should be a wake-up call. Get back on your feet by following some of these recommendations:
- Set up a budget with Mint or LearnVest’s My Money Center. Look through your accounts and see where you can trim a few expenses.
- Start an emergency fund. Open a fee-free savings account. Use Credit Karma’s consumer banking reviews to help you make your decision. Set up automatic deposits to your new emergency fund. You can start small, even just depositing $50 or even $25 a month. Whatever you do, don’t dip into your emergency savings fund unless it’s actually an emergency.
- Set up alerts through your credit card accounts, Credit Karma, or a Google calendar. Configure alerts to remind you when ten days in advance that your bill is due. That way, you’ll have some extra time to pull together the funds.
- Watch your credit utilization rate. You can monitor your credit utilization rate on Credit Karma. We’ll even show you notifications when your utilization rate is getting too high. Keep your credit card balances to less than 30 percent of your credit limits. This will show healthy, responsible credit use, and keep you less dependent on credit cards.