I Can't Make My Credit Card Payment, Now What?
It's the end of the month and you sit down to pay your bills as you always do. But you quickly realize that you simply do not have the money in your account to make even the minimum payment on your credit card bill.
While many people simply skip a payment or send their money in late, this can have negative consequences on your financial future. Missing even a single credit card payment can reduce your FICO credit score, which may cause you to pay higher interest rates or even be turned down for loans in the future. According to MyFico.com, once a payment is reported 30 days late by your creditor it can affect your credit score and payments reported 60 or 90 days late even more significantly factor into the equation. The agency uses a variety of factors to calculate your credit score, with 35% of the score based on payment history.
Additionally, if you miss a payment or pay your credit card bill late, you will be charged a late fee, typically $25 to $30 dollars. In addition to having less money to pay off your debt after paying the late fee, your credit company can raise your interest rate or even close your account if you have a pattern of missing payments.
Here are five steps to take if you find yourself unable to pay your credit card bill:
1. Stay Calm and Business like
When Kenny Golde, author of "The Do-It-Yourself Bailout" found himself with a quarter of a million dollars in credit card debt from his business and nearly $4,000 a month in interest alone, he had a lot of fear and anxiety, but found that letting go of the guilt helped him work through a solution. "Once you are able to let go of the emotional attachment to your debt, you will be in a better position to negotiate because you won't be as susceptible to the creditors' emotional ploys and you will have more patience," Golde says.
2. Determine How Much You Can Pay
Take a careful look at your finances and determine how much you can afford to pay the credit card company. Many companies will be more likely to negotiate if you offer to pay at least a portion of the amount due. Bankruptcy attorney John Hargrave recommends not using your IRA or 401 (k) to pay your credit card debt. "Your IRA and 401(k) funds are exempt from creditors - you will be able to protect all of your IRA and 401(k)," Hargrave says. "Paying credit cards with your retirement savings is throwing money away." He also recommends not paying your credit card bill with a home equity loan or line of credit because you are turning an unsecured debt into a secured debt that could put your home at risk for foreclosure.
3. Call the Credit Card Company
As hard as it can be, pick up the phone and call your credit card company. Cash flow expert Chris Miles says most people avoid making the call when things get rough and he encourages them to call their creditors, explain their situation and ask about the available options. "Many creditors have become more willing to help you out by offering a reprieve for one, two, or more months, depending on financial circumstances, without hurting your credit," Miles says. He also strongly recommends not avoiding their calls for updates on the dates of payments, which will make them less willing to work with you in the future.
4. Pay As Much of the Amount Owed as You Can
If you credit card company modified either your amount due or your due date, be sure to stick to your end of the bargain. If your company was not willing to work with you, pay as much towards the amount due as soon as you can. However, you should make sure that your utilities and mortgage are paid before the credit card bill since your home can go into foreclosure and your services can be shut off.
5. Create a Plan for Next Month
Make sure that next month you don't find yourself in the same situation. Miles recommends finding ways to reduce expenses and increasing your income. "Look for ways to save on utilities, food, and other costs. You could even sell off clutter in your house, garage, or storage," Miles says. "At the same time, see if you can earn a raise or promotion by speaking with your boss, or if an entrepreneur, look for ways to add more products and services."