When you’re not sure if you can pay your credit card bill each month, it can be excruciating just to look at your statement. When this happens, your total outstanding balance will jump out at you, and even the amount of your minimum payment can cause your pulse to race.
If you are having trouble paying your credit card bills, there are some positive steps you can take to meet your obligations while protecting your credit history.
When people talk about having difficulty paying their credit card bills, they could be referring to one of two different problems. About half of all American credit card users always avoid interest charges by paying each month’s statement balance in full and on-time. For these cardholders who are intent on paying no interest, having trouble paying their entire statement balance can still feel like a crisis, even though they can at least avoid going into default by paying the minimum. (It’s understandable why not being able to pay in full could cause someone consternation, given how quickly credit card interest can add up and the fact that high debts can hurt your credit score.)
The other credit card payment problem is for those who have been carrying a balance, and are now unable to pay the minimum. These cardholders are already paying interest on their existing balance, but they are now unable to pay at all.
How to Avoid Interest
If you have been in the habit of avoiding all interest charges by paying your credit card balances in full each month, but are in danger of not being able to do so this month, there are some ways you might be able to continue avoiding interest charges. If your statement period hasn’t ended, you will want to avoid new spending as much as possible, or at least postpone any new purchases until your next statement period.
Next, you can try to find any purchases that are still eligible for return. Thankfully, many credit cards come with a return protection benefit that can offer you a refund if the merchant is unwilling to accept a return.
You could also consider opening a new credit card account with 0% annual percentage rate (APR) promotional financing for a limited time. These offers allow you to transfer your existing balance to a new account that doesn’t incur interest until the promotional financing period expires (usually between six and 21 months). Unfortunately, some credit card users with very high debt-to-credit ratios will not be able to qualify for these promotional financing offers. In addition, most of these cards will impose a balance transfer fee of 3% to 5% on the amount transferred — and it’s best to pay your balance off in full by the time the offers expires, otherwise you may be faced with retroactive interest.
It’s also important to keep in mind that applying for a new balance-transfer credit card can create a hard inquiry on your credit report, which can ding your score. This may be worthwhile, if the offer will help keep your debts from snowballing, but is another reason why you’ll want to try to apply only for cards your credit score can qualify for. (You can view two of your scores for free every 14 days on Credit.com.)
How to Avoid Default
Credit card users who are unable to meet their card’s minimum spending requirements are in risk of default, which can result in late fees, a penalty APR, severe damage to their credit and and the closure of their accounts. Needless to say, you should avoid these consequences at nearly any cost. First, you will want to prioritize all of your existing debts, trying to delay payments that might not affect your credit. You will also want to return all of the purchases that you can, and try to uncover all remaining sources of funds to meet your minimum payment.
But if you are still unable to make your minimum payment, then you will have to take steps to mitigate the consequences. You can start by contacting you card issuer and explaining the problem, including any extraordinary circumstances such as illness, divorce or job loss. This isn’t an easy conversation to have, but it’s a necessary one. And if you can get your card issuer to accept a reduced payment, then it might not affect your credit. You will also want them to waive late fees and refrain from imposing the penalty interest rate, if possible.
If you’ve contacted your card issuer and worked out the best possible payment agreement, but you are still anticipating future payment problems, then it’s time to get help. You can consider contact a local non-profit credit counseling service that can help you to examine your options going forward. The Federal Trade Commission has recommendations for choosing a credit counselor on its website.
It’s difficult to come to grips with the possibility of missing a credit card payment, but there are some possible ways out. By exploring all of the options that are available, you can find the one that allows you to get out of this situation as quickly and easily as possible.