When a credit card payment is due and you don’t have enough money, your next move is critical to your financial well-being.
From updating your budget to evaluating debt repayment options, creating a plan early can control costs and prevent a drop in your credit score.
Here are some steps that might prevent the situation from getting worse.
Review your budget
Create a realistic budget, which requires you to be aware of all your spending. Review your debit and credit card statements for purchases like unused subscriptions. Also investigate which expenses could be swapped out for cheaper alternatives. If there’s no wiggle room and you’re struggling to afford your daily basics, prioritize the necessities while you create a debt plan.
Thomas Nitzsche, director of media and brand at Money Management International, a nonprofit financial consulting and education service, recommends making sure you can afford necessities like housing and utilities, as well as work-related expenses like transportation. To cover these expenses, you may need to make concessions, find ways to increase your income or borrow money from loved ones.
“You may have to reduce the number of cars you own, or have just one car, or downsize your living situation if your housing is really unaffordable,” Nitzsche said.
Call your credit card issuer
You can save yourself some stress by contacting your credit card issuer early to let them know about your situation. While there’s no guarantee it will be resolved, it’s worth asking.
Nitze says contact them before you miss a payment, as creditors may be willing to extend a grace period, allow you to skip a payment, reduce the payment amount or change the due date.
Some issuers may also offer hardship programs that temporarily reduce your interest rate if you encounter circumstances beyond your control, such as job loss or an emergency.
Consider credit counseling
If you need more help than your creditors can provide, seek advice from a counselor at an accredited, nonprofit credit counseling agency.
“They’ll look at the whole picture — income, assets, monthly expenses, who you owe money to, how much you owe, what the debt situation is — to help you decide which path is best for you,” Nitze said.
A credit counselor can also review your budget to identify any missed opportunities, help you work with creditors, guide when to seek legal advice, and more.
Additionally, a counselor will determine if you qualify for a debt management program, which consolidates qualifying debts into one fixed payment. These programs, for a fee, can lower your interest rate and waive fees, and typically give you three to five years to pay off your balance. The upfront cost may be worth it if you save on interest costs in the long run.
Understand the consequences of missing a payment
Credit card delinquencies are on the rise, so if you’re having trouble making payments, know that you’re not alone. More credit card accounts were 30+ days delinquent and 60+ days delinquent in the fourth quarter of 2023 than in any other quarter since 2012, according to the Federal Reserve Bank of Philadelphia.
The domino effect of missed payments can include:
- Late payment fees. According to the Consumer Financial Protection Bureau website, the typical late payment fee is currently $32.
- Lower credit scores. When a payment is 30 days past due, it is usually reported to the credit bureaus and appears on your credit report. The data collected in your credit report is used to calculate your credit score, and payment history is important for this.
- Penalty APR. Depending on the credit card issuer, a penalty APR may apply after a payment is 60 days past due. This rate is usually higher than the going rate on the credit card, making it more expensive and harder to pay. This APR can remain constant on the existing balance for six months, even if you bring your account up to date and continue to make payments on time. Terms vary by issuer.
- Download. After approximately 180 days (sometimes earlier), an account can be closed, which means the account is closed and written off as a loss, but you remain responsible for paying the remaining balance.
Some of these stains can stay on your credit report for up to seven years and can make borrowing more expensive or limit your future options.
“Anyone looking down the road, anyone pulling your credit report — which could be other lenders, employers, insurance companies, property managers, tenant screening companies — is obviously going to take this into account when making some kind of decision about you,” said John Ulzheimer, a credit expert who has worked for credit-scoring company FICO and large credit bureau Equifax.
You could also face other consequences, such as having charges placed on your account or facing legal consequences, such as a lawsuit, Ulzheimer said.
In some cases, repayment may simply not be feasible. But if you can warn your card issuer ahead of time and know what to prioritize, it may be possible to limit the damage to your credit.
