Don’t panic.
You’ve fallen behind on your credit card payments. We’re talking way behind. Not a few weeks late. Months. Not one missed payment. Two. Or four. Can you ever catch up? You’re honestly not sure at this point. Breathe. All isn’t lost. The following steps may help you inch your way out of the hole.
Contact your credit card issuer.
It can be intimidating when you’re behind on debts, but the simple fact is, credit card companies can’t help you if you don’t ask. And every financial expert in the world will tell you: Don’t ignore the phone calls. Talk to your credit card company.
“Explain that you realize you’re behind and you’d like to take steps to return your account to good standing, but have limited cash available,” says Maria Schriber, the community, content and data manager at Wallaby Financial, Inc., which helps maximize credit card rewards. The credit card company will likely work with you to develop, say, a hardship payment plan to get you back on track, she says.
Explain why you’re in trouble.
When you were just beginning to struggle, you probably didn’t want to explain your situation to your credit card issuer. After all, these companies are infamous for lowering credit limits and restricting hard-luck consumers’ access to their credit cards, in an effort to minimize the risk of losing more money. But if you’re in deep trouble, your issuer has likely already lowered your limit or restricted your use. So be honest and don’t hold back. Maybe you will be allowed to use your card once you’re caught up.
“Remember there’s another person on the other end of the phone who can help you,” says Bethy Hardeman, chief consumer advocate at Credit Karma, a credit and financial-management website. “Banks work hard to keep customers and are sometimes willing to offer benefits or adjustments for your account,” she says. “You may be able to work out a repayment plan, lower your interest rate or even get some of your late fees removed.”
Use the consequences as motivation to pay off your cards.
As debt piles up, it’s easier to wave the white flag and just stop making payments. But if you do that, there will be consequences — to both your credit score and history. Use that as motivation to pay down your debt.
“Once in collections, the original account has been charged off as a loss and likely cannot be reopened,” says Rod Griffin, director of public education at Experian, one of the three major credit bureaus. On the plus side, Griffin adds, “Paying the debt will result in the collection account status being updated to show ‘paid,’ which is the first step in restoring a positive credit history.”
Earn extra money to put toward your debts.
If you’re in serious trouble but are determined to get back on track, earning extra income may be your answer. “Scrimp, save and sell unused items to come up with bucks to pay more than the minimum so that you pay down your debt soon,” advises Jeff Herman, Web editor at CreditCardGuide.com, a credit card comparison and news site. “Mac and cheese, hot dogs and baked beans, tuna and noodles can be tolerable if you’re working toward a goal of being debt free. Keep your eye on the prize.”
Develop a plan for paying off those credit cards.
If you’re behind but able to make payments, Hardeman says there are two popular strategies used to pay off debt: the avalanche and snowball methods.
Essentially, the avalanche method saves you more money over more time, Hardeman says, while the snowball plan is faster. In a nutshell, with the avalanche method, you put any extra money you have toward the credit card with the highest interest rate while paying the minimum on the other credit cards. With the snowball method, you put your extra money on the credit card with the lowest balance while paying the minimum on the other credit cards. Experts say you should use whichever method makes you feel better about paying off your debt. After all, the goal is to lower your debt, one way or another.
Get credit card counseling.
First, a caveat: Proceed with caution. There are plenty of shifty credit card counseling services that will make your financial situation worse. But there are many reputable ones, too.
A good place to start your search is at nfcc.org, says Griffin, referring to the National Foundation for Credit Counseling’s website. “A good counselor may be able to help you budget more effectively so that you can repay the debt without having to negotiate a settlement. If that’s not possible, they may be able to work with your lender more effectively to reach repayment agreements.”
Don’t get discouraged.
“It’s so easy to become discouraged with massive credit card debt, feel sorry for yourself [and] compare yourself with others,” says Mary Kaarto, author of “Help for the Laid Off.” She is both a speaker and “encourager” living in Missouri City, Texas. Kaarto learned firsthand the struggle of being in too deep when she had maxed out her credit cards to the tune of $9,000 and was unemployed. She finally started dragging herself out of debt when she joined a well-respected debt consolidation service.
Don’t buy things to make you feel better.
When you’re depressed about being in debt and a little money comes your way, it’s easy to understand the urge to splurge, Kaarto says. Once, after ending a two-year stint of unemployment, she bought a used Ford Explorer that she thought she “had to have.” It only ended up putting her in more debt and making it harder to repay existing debts, she says.
Envision your goals.
You’re stressed out. Your credit score has plunged. You’d rather spend money on something fun than on chipping away at a mountain that seems to only keep getting taller. But, as noted, there are huge consequences for doing nothing, beyond seeing your credit score plummet, Schriber says.
“A late payment can ding your credit score by as much as 50 points,” she says, adding, “If you miss a few payments, more stringent consequences can result: increased interest charges, additional late fees, calls and letters from debt collectors and more negative consequences to your credit score, which will affect what kind of loans, like credit card, auto loans and a mortgage, that you can get in the future.”
Pay the debt off, even if it goes into collections.
If your credit card debt goes into collections, you may justifiably decide that it isn’t worth paying down your debt, ever. After all, your credit score and history are decimated, and it’s going to take years to reclaim your good credit.
But maybe not. The newest credit-scoring models are designed in a way that “paying it in full could have an almost immediate positive impact on the person’s credit scores,” Griffin says. He adds, “Those models currently are not in widespread use, but are gradually being implemented by lenders over time.”
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What to Do If You’ve Fallen (Way) Behind on Your Credit Card Payments originally appeared on usnews.com
