Last year, the Federal Reserve released data showing Americans set a new record: Credit card debt surpassed $1 trillion.
Americans struggle to make ends meet while inflation and interest rates take big bites of their budget. By the time many pay for everything they need just to get by, there may not be much left to pay off that credit card debt.
Many people pay only the minimum payment to save money each month. Making only the minimum payment each month is generally a bad idea, since you’ll end up paying hundreds, even thousands, of dollars in interest over an extended period. But what can you do if even the minimum payment on a credit card is out of your reach?
Before you spend another sleepless night worrying about how paying late, missing payments or making no payments at all on a credit card will wreck your credit, try one or more of these tips to help you get the situation under control.
Facing financial difficulties and being unable to pay your credit card bills can be overwhelming. It’s important to address the situation proactively and take appropriate steps to manage your debts. In this article, we will guide you through the necessary actions to take when you find yourself in such a predicament.
Assessing the Situation
Before taking any action, it’s crucial to assess your financial situation and understand the terms and conditions of your credit card agreements. This will help you formulate an effective plan to tackle the issue.
To begin, take a comprehensive look at your finances. Evaluate your income, expenses, and outstanding debts. Calculate your total debt amount and determine the minimum payments required for each credit card. Understanding your financial position will give you a clearer picture of the steps you need to take.
Review the terms and conditions of your credit card agreements. Familiarize yourself with the interest rates, late payment fees, and any other relevant information. This will enable you to negotiate more effectively with your credit card issuers.
Contact the credit card issuer
Your first instinct may be to avoid your credit card issuer if you can’t pay the monthly bill. That’s a bad idea, though. Instead, call rather than email and explain your situation to the customer service rep. Contact them as soon as possible to explain your financial hardship and discuss potential solutions. Most credit card issuers have dedicated departments to handle such situations.
During the conversation, clearly explain your current financial difficulties and why you are unable to make the full payments. Be honest and provide accurate information. Credit card companies are often willing to work with customers facing temporary financial hardships.
Negotiate a payment plan or request a reduced interest rate. Many credit card companies offer hardship programs that allow you to make smaller monthly payments or temporarily suspend payments without incurring additional penalties. Additionally, some companies may lower your interest rate to make it easier for you to manage the debt.
Find out: How To Negotiate Lower Credit Card Interest Rates
Budgeting and Prioritizing Expenses
Creating a budget is essential when you can’t pay your credit card bills. Assess your monthly income and allocate it towards necessary expenses first, such as housing, utilities, and food. Prioritize these essential expenses over credit card payments.
Cut back on discretionary spending. Identify areas where you can reduce expenses, such as eating out, entertainment, or unnecessary subscriptions. By making conscious choices and cutting back on non-essential items, you can free up more funds to allocate towards debt repayment.
Transfer the balance to a card with a 0 percent APR
If you can’t afford payments on credit cards with high balances, consider applying for a balance transfer card with a 0 percent introductory APR. Many balance transfer cards offer an introductory 0 percent APR for anywhere from six months to 18 months or longer. That period can buy some time where you don’t have to pay interest that adds to your balance.
You may even be able to make only the minimum payment until you get back on your feet and then make larger payments later. Before you apply, however, here are a couple of things to keep in mind:
- You’ll pay a balance transfer fee. Most balance transfer cards will charge a three percent to five percent fee on each balance transferred. For example, a transfer fee of three percent on a $2,000 balance would be $60. Before applying, compare the balance transfer fee to the amount you would likely pay in interest over time if you left the balance on your current card to see if transferring the balance is worth it.
- Pay late and the deal is off. A balance transfer can help you pay off debt without interest if you’re diligent about making payments on time. Generally, however, if you pay late or miss a payment, most credit card issuers can nix the 0 percent APR arrangement and begin charging a much higher interest rate. If that happens, you could end up with even more credit card debt.
If you pay late or miss a payment, don’t give up right away. Call the credit card company and ask the representative to give you a break this one time. The company may waive the missed or late payment rule this once. Then never pay late or miss a payment again.
Find out: How to Transfer Credit Card Balances
Meet with a credit counselor
If your credit card debt is out of control, consider meeting with a credit counselor at a nonprofit or nominal-fee credit counseling agency to sort things out and come up with a debt payoff plan.
Think your debt is too embarrassing to talk about with someone else? Don’t let that stop you. Credit counselors have seen just about every type of horrific debt situation out there and probably won’t bat an eye at your high credit card balances.
Credit counselors are there to help in many ways, including:
- Helping you create a debt payoff plan
- Working with you on a new monthly budget
- Trying to work out a payment plan with credit card companies and other creditors
- Showing you how you can repair your credit if necessary
Find out: What is Credit Card Counseling and What Can It Do For You?
Add to your income
If you’re unable to pay your credit card bills each month, take on a side hustle or part-time job to earn more income. Few people are eager to cut into their leisure time with more work obligations, but earning more money is one of the fastest ways to pay off credit card debt.
If you devote your earnings exclusively to credit card payments, you’ll be amazed at how quickly you can chip away and eventually wipe out credit card balances. If working two jobs seems too much, look for a job that pays more so you can pay monthly credit card bills.
Find out: How to Make Extra Money to Pay Off Debt
Protecting Your Credit Score
While dealing with unpaid credit card bills, it’s important to protect your credit score as much as possible. Late payments and default can significantly impact your creditworthiness. Here are some steps to protect your credit score:
- Avoid late payments by adhering to any temporary payment arrangement made with your credit card company.
- Request a temporary payment arrangement if you’re unable to make the full payment. Some credit card companies may agree to reduce or suspend your payments for a short period.
- Regularly monitor your credit reports to ensure accuracy. Dispute any errors or inaccuracies promptly to maintain the integrity of your credit history.
Find out: Why Your Credit Score Dropped
Learning from the Experience
Facing financial difficulty is a learning opportunity. Take the time to identify the causes of your financial struggles. Whether it’s overspending, lack of budgeting, or unexpected emergencies, understanding the root causes will help you avoid similar situations in the future.
Develop better money management habits going forward. Consider financial literacy courses or workshops to improve your understanding of personal finance. By implementing effective money management strategies, you can regain control of your finances and avoid falling into debt again.
Learn about: The Psychology of Spending Money
FAQs
If you can’t pay your credit card bill, you may incur late fees, penalty interest rates, and damage to your credit score. It’s important to take proactive steps to address the situation.
Yes, you can negotiate with your credit card company. Contact them and explain your situation. They may offer payment plans or reduced interest rates to help you manage your debt.
Late payments and defaults can have a negative impact on your credit score, but they are not permanent. By taking appropriate actions and managing your debts responsibly, you can rebuild your credit over time.
Bankruptcy should be considered as a last resort. It has serious consequences and should only be pursued after careful consideration and consultation with a bankruptcy attorney.
To prevent financial difficulties, develop a budget, live within your means, and establish an emergency fund. Practice responsible credit card usage and regularly review your financial situation.
Summary
When you find yourself unable to pay your credit card bills, it’s crucial to take action and address the situation promptly. By assessing your financial position, communicating with credit card issuers, budgeting, exploring additional income sources, seeking professional help if necessary, protecting your credit score, and learning from the experience, you can work towards resolving your financial difficulties and building a more secure financial future.
