Life is full of surprises. Unfortunately, those surprises aren’t always in line with our financial goals. Unforeseen emergencies, like unplanned home, medical, or auto repairs, can affect your monthly budget in significant ways. If credit card payments are part of that budget, it may be tempting when times are tight to forego your credit card payment. But what are the consequences?
If you have been paying your credit card bill on time, month after month, then you may be able to receive assistance from your lender. Sometimes lenders will renegotiate a payment structure if your account is in good standing. Before you skip that monthly payment, you should contact your lender and see your options.
If your lender cannot provide assistance, here is a summary of what could happen after you miss your credit card payments.
You Will Begin to See Late Fees on Your Statement
Most lenders have a late fee structure that will begin once you miss your first payment. There are several factors that determine how much your late fee will be, but the fee is usually dependent on the lender and the total balance that you are currently carrying on your card. In 2009 the federal government passed the Credit CARD Act, limiting how much lenders can charge. For the first missed payment, the limit is $29, but the fee can be raised to $40 for each additional missed monthly payment.
Your Credit Score May Drop
The ability to make payments on credit cards and other loans is the single biggest factor in determining your credit score. After going 30 days without receiving payment, your lender will likely report the issue to the three major credit bureaus. Your overall credit history will determine how many points your score will drop. People with higher credit scores tend to see the biggest point deductions. Your lender will issue another report to the credit bureaus for each 30-day cycle that passes without a payment being made. Late or missed payments can remain on your credit report for up to 7 1/2 years, lowering your credit score the entire time.
Your Interest Rate May Increase
The interest rate you received when you opened your credit card account was determined by your credit history up to the time when you applied for that card. By missing payments for 60 days or more, your lender may decide that you no longer qualify for that official rate and increase the amount of interest applied to your card each month. An increased interest rate combined with late fees can mean that the balance that you owe will begin to grow more quickly.
Your Lender May Shift Your Balance to a Collection Agency
After approximately 6 months, your lender may decide to consider your account a loss and either sell or share your debt with a collection agency. The way collection agencies make money is by recovering as much of your debt as they can, as quickly as they can. You will likely begin to receive calls and letters from the agency that has taken over your account. These calls and letters can be quite frequent and may cause a lot of stress. While the collection agency is trying to collect payments, your credit score will still be undergoing damage as the collection agency reports its progress to the credit bureaus.
How to Recover After Missed Payments
Stop Using Your Credit Cards
Adding more charges to your overdue account can only make things worse. Try to find areas in your budget where you can cut back to free up the money you need to make the minimum monthly payments on your credit card.
Contact Your Lender or the Collection Agency
Talking about debt can be a painful conversation, particularly with those you owe money to. Depending on the lender or agency, they may have plans or programs they can offer to help you settle your debt in a way that better suits your budget. Remember, they still want to be paid back for the money they lent you, even if it means adjusting your original agreement.
Talk to a Debt Settlement Company
While it may feel like you are alone in your struggles with debt, you are not! Every year millions of Americans find themselves in a similar position, and many of them turn to a debt settlement company. The debt specialists at ACCS are experienced in working with people like you to find a debt relief plan that can help ease the burden of missed or late payments. The team at ACCS can even negotiate with your lender or the collection agency on your behalf until both parties agree on a lump sum that you pay the creditor. This lump sum is based on your budget and is often less than you originally owed.
Request your Custom Debt Relief Plan from ACCS today!