A Guide to Conquering Late Payments

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A Guide to Conquering Late Payments


Did you know that just one late credit card payment could have an adverse effect on your credit? Fortunately, late payments are avoidable. Here are some ways you may be able to avoid late payments and recover if you find yourself with one on your credit history.

1. Sign up for auto-pay.

One way to avoid the threat of late payments is to sign up for auto-pay. Auto-pay is when you authorize your credit card issuer to automatically deduct payments from your checking account on a certain date.

Matt Schulz, senior industry analyst at CreditCards.com says, "Automating your bills can be a lifesaver. Just make sure that you pay more than the minimum when you do it. Otherwise, you're just asking for trouble." So if you choose autopay, you can often opt to pay the full amount each month to avoid paying interest. If you can't do that, some credit card issuers may allow you to set a fixed amount that's more than the minimum.

One caveat of auto-pay is that you must have sufficient funds in your bank account for this method to work. If you don't, you may incur additional fees -- an overdraft fee and/or a late fee if your payment doesn't go through.

Want to try to ensure you have enough funds in your account? Try setting the auto-pay date for shortly after pay day. In addition, you may want to create a habit of checking your account balances regularly so you always have an idea of how much is in your account.

2. Set up reminders.

If you're like me and enjoy doing some things manually, auto-pay might not be the right option for you. However, you may not want to rely 100 percent on your memory to make on-time payments.

Instead, consider setting up calendar reminders and signing up for online alerts. For example, I've scheduled all of my payment due dates in my online calendar as a recurring meeting. The calendar syncs with my mobile phone, so wherever I am, I have access to the reminder.

In addition, I've signed up for online alerts so that I receive an email from my credit card company five days before each due date. Once I see those reminders, I log into my account and make a payment for the total balance.

3. Make weekly payments.

Even though credit card payments are typically due once a month, this timeframe could potentially lead to a cash flow issue. After charging items on your credit card for nearly a month, you may find it difficult to pay off your balance in full while managing your other bills, such as rent. This could potentially lead to a late payment or carrying a balance on your card.

For example, it's easy to charge items on your credit card, even if you don't have the cash now, but you know you'll have it later. However, if you want to avoid debt you should try to only spend the money you actually have now.

To help you stay on budget and pay your bill on time, consider making weekly payments to help with your cash flow and avoid any late payments or additional late fees. You may be inclined to spend less when you make weekly payments and monitor your cash flow.

4. Call your credit card issuer.

If you've missed your payment's due date, the first thing you should do is make the payment and then give your credit card issuer a call, Schulz says. You'll want to act quickly in order to remedy the situation.

"If it's your first time missing a payment and you've been a good customer for a while, ask your issuer to waive their late fee," Schulz adds.

It doesn't hurt to ask, and you may be surprised by the outcome. "About six in seven people who ask get their request granted, according to our recent survey, so your odds are way better than you might expect," Schulz says.

If this isn't the first time you've missed a payment, it may be time to sign up for auto-pay or stop using credit cards until your balance is paid off and you find a system that works for you.

The Consequences of Missing a Payment

Unable to resolve a late payment with your credit card issuer? Here are some potential repercussions:

  • You may be charged a late fee. You could be on the hook for a late payment fee that can often range from $25 to $35.
  • Your interest rate may go up. Your credit card issuer may increase your interest rate because of your late payments, although such increases are subject to limitations imposed by the Credit CARD Act of 2009. This could mean that a promotional interest rate may be forfeited and set to the default interest rate, or your interest rate may be set to a penalty interest rate.
  • Your late payment could show up on your credit report. If your payment is late, in particular if it's more than 30 days late, your late payment may show up on your credit report and the three major credit bureaus may be notified. Not only that, but it could stay on your credit report for seven years.
  • Your credit score may drop. Your payment history typically accounts for a large percentage of your credit score, so a missed payment on your report could potentially have a dramatic effect on your credit score, depending on how late your payment is, how often you have late payments, and other factors. "Your credit score could take a major hit -- anywhere from 50 to 100 points depending on your current score," Schulz says.

Bottom Line

Making a late payment is more than just annoying -- it could also seriously affect your credit score. In order to avoid late payments, consider using these steps to ensure you make all of your payments on time. And if you do miss a payment, call your credit card issuer immediately and take steps to try to ensure you don't do it again.

About the Author: Melanie Lockert is a freelance writer and editor currently living in Portland, Oregon. She is passionate about education, financial literacy and empowering people to take control of their finances. Her work has been featured on Rockstar Finance, GoGirl Finance, The Globe and Mail and more.

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