Struggling to pay the minimum on your debts? You’re not alone. According to the Federal Reserve Bank of New York, late payments on student loans, credit cards and other loans are on the rise. In fall of 2018, for example, lenders reported more overdue loans than at any other time in seven years. Meanwhile, interest rates are continuing to go up, making it costlier to carry a balance.
Payments that are only a few days late probably won’t hurt you. In general, lenders won’t report missing payments to the credit bureaus until they’re at least 30 days past due. Some creditors will even forgive your first late payment or waive late fees altogether.
However, a loan payment that’s late by more than 30 days — which, in financial circles, is known as a delinquency — can wreak serious havoc on your finances. Credit scores place more weight on payment history than on any other metric, so you could have trouble securing an affordable loan if your credit report shows one or more missed payments. Your current lenders may also raise your rates dramatically if you repeatedly miss bills.
Don’t panic, though, if you’ve already missed one or more of your payments. Despite the damage they can cause, you can overcome a history of delinquencies.
5 steps to follow when you’re delinquent on debt
1. Take a deep breath and face up to what you owe
Don’t hide from your loan payments. According to Thomas Nitzsche, a credit educator and spokesman for Money Management International, many people try to cope with their debt problems by ignoring them. However, “it’s important to be proactive,” he said.
Size up every bill you owe, including utilities and other expenses, and determine which bills are current and which ones are overdue. Add up the minimum payments alongside other expenses, such as groceries, and compare them with your monthly income.
Then, consider these questions:
- Are you spending more than you make?
- How much more money do you need to come up with to pay all your monthly bills?
- Can you afford to pay next month’s bills or are you at risk of missing another payment?
Answering these kinds of questions can help you determine what steps you need to take and how quickly you’ll be able to turn around your finances.
2. Prioritize your payments
If your next set of bills are due right away and you can’t afford to pay all of them, scan your budget and consider which debts you can temporarily put off.
Some people let unsecured debts, such as their credit cards, become overdue because they aren’t tied to an essential need, such as a home, car, electricity or heating. However, you may want to consider putting off bills that don’t regularly report to the credit bureaus instead, said Nitzsche.
“It depends on what your outlook is on when things are going to turn around,” he said. If you’re confident you’ll be able to come up with your payments relatively soon, then you may be better off skipping an utility bill, such as a cable payment, rather than failing to pay the minimum amount due on a card. Utility companies will often give you more than one chance to pay your bill before they shut off services, said Nitzsche.
Depending on your income, you may also be able to get help paying for utilities from a local charity, he said. If the helpline 211 is available in your area, try calling it and asking for a referral, he added.
3. Boost your income and slash your expenses
If you’re dealing with a monthly shortfall, you’ll need to come up with extra money relatively quickly in order to avoid having your credit deteriorate further. One 30-day late payment on your credit report isn’t nearly as serious as a 90-day late payment, an account that’s gone into collections or multiple delinquencies.
Scan your monthly budget for opportunities to trim expenses. “Look for easy wins,” said Nitzsche. For example, do you have a gym membership you don’t need or an unnecessary magazine subscription? Can you cut cable or make other lifestyle choices? Even making small changes, such as dining out less often, can make a big difference, says Mark Kantrowitz, publisher and vice president of research for Savingforcollege.com.
“If you’re spending $5 a day on coffee across 20 days a month, that’s a hundred dollars a month,” Kantrowitz noted. “These things can add up quickly.” You may also want to consider more dramatic changes, he says, such as splitting rent with a roommate or selling some belongings.
In addition, brainstorm ways to increase your monthly income quickly like by picking up a side gig or asking for a raise.
4. Ask your creditors for help
If there isn’t enough room in your budget to cut additional expenses or pay your overdue debt, then your next step should be to call your creditors and see if they’re willing to work with you on a debt repayment plan.
Some creditors may allow you to defer your payments if you can prove financial hardship. If you have federal student loans, for example, you may be able to postpone your payments for up to one to three years. “Talk to your lender,” said Kantrowitz. “Tell them about your financial circumstances. You lost your job or are taking unpaid medical leave or maternity leave or something else.”
Some lenders may also be willing to cut you a break by cutting your rates, trimming fees or allowing you to pay less than the minimum amount due. For example, your card issuer may offer a temporary assistance program for cardholders suffering from a financial emergency. “Communication is key to figuring out what your options are,” said Nitzsche.
Don’t be afraid to call your lenders even after you’ve missed a payment. Some lenders may be more willing to help you once it’s clear you’re in financial straits, said Nitzsche. Just make sure to call before your account goes into collections, he said. “If you get a no the first time talking to somebody, call back later,” he added.
Finally, consider reaching out to a nonprofit credit counseling agency, says Beverly Harzog, a credit card expert for U.S. News and World Report. A credit counselor may be able to provide you with free advice or help you navigate a debt management plan.
Whatever you do, don’t lose hope. “If you’re drowning, don’t wait,” said Harzog. “Reach out to find out what your options are.”
5. Consider debt refinancing and consolidation
If you’re buried under credit card bills or an auto loan, you could take out a personal loan to pay off your existing debts and make repayment easier.
For example, let’s say you have an auto loan with a high monthly payment. If you need to free up space in your budget, you could refinance your auto loan using a personal loan. Doing so could allow you to extend the repayment term, lowering your monthly due. Keep in mind, however, that this tactic could leave you in debt longer.
If you have multiple debts straining your budget, you could use a personal loan to combine those debts together. That way, you only have one monthly bill to worry about.
Over time, you can work on improving your credit score. Then, you could get a personal loan with a lower interest rate to reduce your total interest costs and monthly payments.
Interested in a personal loan?Here are the top personal loan lenders of 2019!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|5.74% – 16.99%1||$5,000 - $100,000|
|7.54% – 35.99%||$1,000 - $50,000|
|7.99% – 35.89%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|5.99% – 29.99%3||$7,500 - $40,000|
|6.79% – 20.89%4||$5,000 - $50,000|
|9.99% – 35.99%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|