What Is A Delinquent Account? How To Pay Past-Due Balances
You’ve run up too much debt on your credit card account and can’t make your monthly payments. Now you owe hundreds of dollars to your card provider and you’re officially behind on your payments. Or maybe you took out a personal loan and missed your last three payments. Your account is now past due and you’re starting to receive not-so-friendly letters from your lender reminding you of your debt.
No one likes to fall behind on their credit card or loan payments. And doing so comes with some serious consequences: Your credit score will plummet. Your providers might raise your interest rate or charge you a high penalty fee. And your credit reports will show that you’ve missed payments, which will make it more difficult to qualify for a new loan or credit card.
But there are ways to recover financially even after your credit card accounts or loans have fallen into delinquency. You might have to negotiate with your creditors, set up a payment plan or come up with a big chunk of money.
Remember that you can overcome your debt problems and rebuild your financial health by taking some repayment important steps.
What Is A Delinquent Account?
Technically, any of your accounts are delinquent as soon as you miss a payment due date. For example, if your personal loan payment is due on the 5th of every month and you haven’t paid on the 6th, your account is delinquent.
The financial consequences of having a delinquent account, though, don’t kick in that quickly. For instance, many credit card providers and mortgage, auto or student loan lenders offer payment grace periods and won’t report your monthly payments as late until you’ve missed your due date by 30 days or more.
If you’re late on credit card accounts, your provider might eventually close your account. This will vary by provider, but many will close your account after you’ve failed to make a payment for 90 days or more. The money you owe doesn’t disappear, though. If your credit card provider closes your account and you still owe $10,000, your provider expects you to pay the money you owe.
When Is An Account Considered Delinquent?
If you can make your required monthly payment before you’ve hit that 30-day mark, your lenders and credit card providers won’t report your missed payment to the three national credit bureaus of Experian®, Equifax™ or TransUnion®.
That’s good: A single late payment can send your three-digit credit score plummeting by 100 points or more. These missed payments also stay on your three credit reports for 7 years.
Lenders usually won’t take punitive measures against you until your loan is delinquent for a longer number of days. For instance, credit card providers can’t raise your interest rates because of missed payments until you’ve fallen at least 60 days behind on paying your card.
But lenders can send your account or loan to a collection agency once you’re officially late on your payment (31 days or more past your due date). Most, though, probably won’t take this action so quickly. There are no rules here, but many lenders and credit card providers want to work with you and will wait until you are 180 days or so late before sending your account to a collection agency.
You don’t want to wait that long to pay off your unpaid debt, though. Collection agencies can be aggressive in tracking down the money you owe. These agencies do have to follow federal laws regarding when and how often they can call you, but having an account in collection will mean frequent, and unwelcome, phone calls from debt collectors.
I’m Behind On My Credit Card Payments. What Do I Do?
If you have fallen behind on your credit card payments, you have several options
Pay What You Owe
If you can pay off what you owe, you’ll immediately solve your problem. This isn’t financially realistic for everyone, though.
Before you throw a big chunk of cash at your credit card provider, make a household budget listing your monthly expenses and income. You want to make sure that if you drain some of your savings to pay your credit card bill in full that you have enough money left to cover your other expenses. If you don’t, you’ll have to take other steps.
You can also start immediately paying your minimum required monthly payment. This won’t erase your accumulated debt, at least not anytime soon. But by making regular payments on time, you’ll keep the debt collection agencies away.
If you have so much debt, though, that even the minimum monthly payment is too high? Or if you’re worried that it will take you years to pay off your credit card debt by only making the minimum payments? Then it’s time to look for alternative solutions.
Call Your Lender And Ask For A Payment Plan Or Settlement
You should contact your lender as soon as you start falling behind on your monthly payments. They may be willing to work out a compromise or plan that will keep your account from falling into delinquency.
Lenders might allow you to make a smaller monthly payment that you can afford each month until you pay off your debt. Others might take less than what you owe just to get at least some money from you. Say you owe $10,000 in unpaid credit card debt. Your provider might accept a one-time payment of $6,000, taking the remaining $4,000 that you owe as a loss.
Consider Debt Consolidation
If you can’t work out a solution directly with your credit card provider, you might consider debt consolidation. Under this process, you work with an outside company that combines all your debts into one large loan. You use these funds to pay off your other debt. You then make regular payments on this new loan.
The goal is to end up with a single loan that comes with a lower interest rate than the average rate on your outstanding debts. You also want a monthly payment that you can afford to make. Don’t miss your payments on this new debt consolidation loan, though. That, too, will send your credit score falling.
Consider Debt Settlement
You might also work with a debt settlement company. These companies will negotiate with your creditors on your behalf to negotiate a lower payment from you to make your debt disappear.
For instance, if you owe $15,000 in credit card debt, a debt settlement company might negotiate a total payment of $8,000 from you. Once you make this payment, your remaining $7,000 of credit card debt disappears.
But be wary. There are pitfalls with debt settlement companies. First, it doesn’t always work. The creditors you owe are under no obligation to accept any settlement offer. Secondly, the service isn’t free. Debt settlement companies will charge you fees. Make sure they aren’t charging outrageous ones.
As A Very Last Resort, Consider Bankruptcy
If your debt problems are too overwhelming, you can file for bankruptcy protection. You should take this step only as a last resort, though. A bankruptcy filing will decimate your credit score. It will also remain on your credit reports for 7 or 10 years, depending on the type of bankruptcy.
Chapter 13 bankruptcy filings stay on your reports for 7 years. Under this type of bankruptcy, you work out a repayment plan with your creditors. You might have to repay less than what you owe, but your debts don’t disappear completely.
A Chapter 7 bankruptcy filing remains on your credit reports for 10 years. Under this form of bankruptcy, your debts are dissolved. But you might also lose assets such as your car or home in the process.
Rebuilding Credit After Your Accounts Become Delinquent
Your credit score will be in shambles after your accounts fall into delinquency. Fortunately, you can rebuild it quickly.
First, make a new history of paying all your monthly bills on time. Do this for a long enough period, and your credit score will slowly but steadily rise.
Next, keep your credit card balances low. If you still have credit card debt, pay it off. And then don’t charge more than you can afford to pay off in full each month. The more credit card debt you have, the worse it is for your credit score.
With all the expenses people face today – from high mortgage bills to rising property taxes, soaring medical bills and rising unemployment thanks to COVID-19 – it can be easy to fall behind on your payments.
But never ignore delinquent accounts. It's safe to say your creditors won’t. Taking the necessary steps to contact your lenders and pay up what you owe as soon as possible pays off.
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