How to handle overdue credit card accounts – Forbes Advisor

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There are a number of reasons why you may end up with an overdue account. Maybe you closed a bank account set up for automatic card payment, your partner made a purchase with a rarely used card, or you just missed a bill in the mail. Beyond the mistakes that occur, you may also find yourself in a financial challenge due to job loss or illness. Whether you can’t make your minimum payments or you just forgot, an overdue credit card account can lead to unwanted problems.

When is my account considered overdue?

If your payment is due on the 25th of the month, your credit card payment is technically considered late on the 26th of that month. Late payments are reported to credit reporting agencies with a “current” code, indicating the payment is 1-29 days overdue. Once your account is more than 30 days overdue, it is considered overdue and will be reported to the credit bureaus as such.

be proactive

Regardless of why your payment is late, your first step is always the same. Pick up the phone and call your credit card provider. Chargebacks and late fees can make the process overwhelming, but opening the line of communication early can increase your available options.

Tell your credit grantor what happened. If you just missed the bill in the chaos of life, let them know you’re ready to pay on the spot. If you can prove that you are always on time with your payments, you can request that your late fees or additional interest be waived.

If there are extenuating circumstances for your missed payment, explain them calmly. If you have lost your job, are experiencing medical issues, or have a death in the family, many credit providers offer a hardship program. These programs are not widely advertised, so the best way to know your options is to communicate your situation to the customer service representative.

Check all transactions

Even if you’re careful, fraudulent purchases do happen. Before committing to a payment plan, make sure you’ve made all card purchases. If you discover a fraudulent purchase, be sure to dispute the charge with your card provider before discussing payment options.

It’s a good idea to regularly monitor your statement for unknown purchases, but if an account is overdue, it might not be on your radar. Be sure to review all charges and make sure you are responsible for them.

Make a plan

Do the math

It’s worth taking the time to review your budget and figure out exactly what you can afford. If you can’t afford the minimum credit card payment, be realistic about what you can afford each month. Don’t over-promise how much or how often you can make payments.

You can also consider alternatives to increase your cash flow. Do you have new items that you could return to the store for a refund? Could you take overtime at work or take a side gig? Could you reduce your expenses for a season? Are there any items you could sell?

Remember not to count on this potential income until you know it is guaranteed.

Negotiate your payments

Discuss your payment options. Your card provider is encouraged to work with you because they don’t want to charge your account. You want to prevent this debt from being sent to collections and they want to recover their lost investment. Depending on your situation, the operator you initially spoke with may be authorized to assist you. If not, you may need to speak to another service.

  • Ask if you qualify for a hardship program.
  • Let them know how much you are able to afford.
  • If your situation is temporary, communicate when you think you can make regular payments.

Get it in writing

If your credit card provider accepts a payment plan, get it in writing. Ask that they include wording that if you join the payment plan, your account will be reported as current to the credit bureaus. Review the written plan once you receive it and make sure it matches your understanding of the agreement.

Keep diligent records

Keep a copy of the payment agreement. Be sure to keep a log of all calls to your creditor, including the date, time, and a brief summary of the content of the call. You should also record all payments made for your debt. These records will help you in any future communication with your creditor.

Reduce additional card purchases

When cash is tight, credit cards are sometimes your best emergency payment method. However, make sure you don’t increase your debt on other cards to cover the overdue payment on one card. It is best to have only one creditor filing a default, if possible.

If you find yourself with multiple overdue accounts at the same time, be sure to contact all of your creditors. Explore your payment options and look for ways to reduce if possible. If you’ve cut your budget and you’re still having trouble, contact a HUD Certified Credit Counselor. They can help you better assess your options and determine if debt settlement is necessary.

Know the consequences of delinquency

Loss of your loyalty points

Most credit cards state that you will not earn rewards and points cannot be redeemed if your account is not in good standing. In some cases, especially if your account is closed, you may lose your points entirely.

For this reason, if you anticipate not being able to make a payment, consider redeeming any cash back credit as statement credit before you miss a payment.

Late fee

Many credit cards charge late fees. Additionally, if you are more than 60 days past due, you may find that your account is charged a higher interest rate, known as the APR penalty.

Reduced credit score

Your creditor will report your overdue account to credit reporting agencies. This negative data will lead to a reduction in your credit score. Negative activity, such as an overdue account, can stay on your credit report for 7 years. If you had excellent credit, it’s likely that a delinquent account could have a more negative impact on your credit than if you had weaker credit with a past past due payment.

Rebuilding your credit score after a default

Although there is nothing you can do to remove this stain, there are simple steps you can take to increase your score in other areas.

Pay on time

Making your minimum payment on time each month is the best thing you can do to rebuild your credit. Timely payments account for 35% of your FICO credit score. And while this delinquency will remain on your record each month you have a timely payment, its impact will be reduced.

Pay off your debt

The second biggest impact on your credit score is your debt to available credit ratio, also known as utilization percentage. You can increase your credit score by paying off your credit card balances. When possible, charge less or make more than the minimum payment.

Keep your old credit cards active

After credit problems, people are tempted to overcorrect. If you plan to close accounts so you don’t accumulate debt in the future, consider keeping your oldest credit account open. Although the length of your credit history only counts for 15% of your score, keeping your oldest credit account active will ensure that your credit score does not drop further.

How to avoid overdue accounts

Once you have resolved your overdue accounts, you want to ensure that payments will be made in a timely manner in the future.

  • Avoid carrying a scale when possible.
  • Set up automatic payments every month, especially for cards you rarely use.
  • Update your contact and mailing information to receive timely card notices.
  • Set up an emergency account for bill payments and unexpected expenses.
  • Call your card provider before you miss your next payment.

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Conclusion

Start the conversation with your creditor as soon as you know there is a problem. Be honest and ask what can be done to keep your account up to date. Get all agreements in writing and stick to them. While this process can be tedious and require you to tighten up on your spending, getting a payment plan can help get your card back in good standing.

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