| Cant Make Credit Card Payments |
| By Credit Federal |
Published
01/30/2009
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Debt Help
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Debt Relief Options If You Cant Make Credit Card Payments
Cant make credit card payments? You're not alone as millions of people struggle just to pay bills and some are cutting back on how much they're paying monthly on balances.
The current credit card payment rate (the percentage of outstanding card debt paid) dropped to 16.1%, 2.5 percentage points lower. This decrease is among the largest on record, and comes as consumers have become more reluctant and less able to make payments. More than just a tool to track payment rates, this is also an indicator of consumers' financial health and is a prediction of what's to come, such as increase credit card chargeoffs. Revolving debt, much of it on credit cards, dipped at a 3.4% annual rate to $973.5 billion.
Even with less debt, consumers are struggling to pay credit card bills. The average household with at least one credit card owed $10,728 last year, nearly the same amount as the previous year.
It's no wonder that some credit card companies are actually lowering credit limits even on existing accounts, as the high risk of credit card debt settlement negotiations are ever-growing.
Not only are credit limits less, but also offers for debt relief options such as 0 intro balance transfer credit card offers and home equity financing for unsecured debt consolidation loans. The reduction in these offers are perhaps escalating the trend of lower repayment amounts.
As the economy worsens, even people who can pay their bills may feel it's wiser to hold onto more of their cash by reducing payments or participating in credit counseling.
As credit card payments fall and loan delinquencies and defaults rise, issuers will increasingly see profits erode. So not only have credit card companies lowered max limits, they've also raised interest rates though the Federal Reserve cut rates. And they've added new or higher credit card fees.
All these efforts are to reduce credit card company risk, but may not be enough and may actually worsen the problem.
Credit Card Payment Advice
Can't pay all your credit cards off in full each month? Free advice to help you decide how to make credit card payments (However, if your goal is to get out of credit card debt, your repayment plan may be different).
1. Pay the minimum on all credit cards: You should always make the minimum payments on your credit cards no matter what. Anytime you pay less than the minimum you're considered late, and not only are you charged a late fee but your interest rate may also increase making your total balance escalate faster. If your other creditors use universal default, those interest rates might increase too. Your delinquency is reported to the credit bureaus. A single late payment in your entire credit history might not do much damage, but the more delinquencies you have the worse it will affect your credit score.
2. Get current on any delinquent accounts: You should get caught up on any accounts that are behind. Again, as long as you pay less than the minimum, you'll continue to be assessed late fees and be reported late to the credit bureaus. If you have any extra money in your budget after making your minimum payments, put it all towards bringing your accounts current. If you're late for 180 days or more your creditor might chargeoff your account or refer it to collections or both.
3. Get maxed out credit cards back below the limit: Anytime your credit cards go beyond your credit limit it raises red flags to current and future lenders. It causes them to wonder if you can responsibly handle credit. Plus, over-limit fees will be added to your credit card balance as long as it stays over the limit. Similar to getting current on your accounts, put your extra money toward bringing your accounts below their credit limit.
4. Payoff high balances: To maintain a good credit score you should keep your balances as close to $0 as possible. Focus on balances that are close to the max credit limit. High credit card balances increase your credit utilization and hurt your credit score. By keeping your balances low, you're showing that you can handle credit responsibly and not bury yourself in debt.
5. Payoff high interest rates: If you want to get out of debt fast, you should focus on paying off credit cards that have high interest rates. Since you pay more in finance charges on high interest rate credit cards, it's smarter to payoff those balances faster to avoid paying extra money to the credit card company. If your goal is to get out of debt, you should evaluate your credit card interest rates along with the interest rates of your other debt.
What if you can't make the minimum credit card payment
When you can't make your monthly credit card payment, the worst thing you can do is to simply let the bill go unpaid. Your creditor can charge you a late fee, raise your interest rate, and report the late payment to the credit bureaus, and any other creditors you may have with a universal default clause can raise their interest rates on you, too.
If you can't pay the minimum, call your credit card company and explain your situation to them. Let them know it's a one-time occurrence and let them know when you'll be able to make your next payment. Most creditors will extend your due date, waive the late fee, and continue reporting a "current" payment status to credit bureaus.
If; however, your credit card company won't deal with you, look for the money in other places in your budget. Is there something you can spend less on this month? Another bill that can wait? Perhaps you can borrow from a friend or family member or get a small unsecured cash loan from your employer on your next paycheck.
If you find that you're consistently having trouble making your minimum payments, consider credit counseling. A credit counselor can help you figure out how to restructure your budget or negotiate lower monthly payments with your creditor.
Rather than forgoing your credit card payment, do what you can to keep your cost of credit low and preserve your current credit standing.
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