Credit cards and debt are important parts of the United States economy as it stands today, and the relationship between consumers and creditors is an interesting one. Consumers love having access to available credit and the rewards they earn when they use it, but when debts get out of hand and the minimum payments pile up, that love becomes hate.
Due to changes in employment, coronavirus shut-downs, and increases in day-to-day expenses, you might’ve found yourself in a pickle — you can’t make the minimum payments on your credit cards and you’re not sure what to do.
Don’t worry — things aren’t as bad as you may think they are. Here’s what you need to know and what you can do next.
What to Do If You Can’t Make Your Minimum Credit Card Payments
If you’ve opened a credit card bill and realized that you’re not going to be able to make your minimum payment, there are several ways to go about finding a solution to your financial blues.
1. Stay Calm — You’re Not Alone
An inability to pay your bills may feel like a massive weight on your shoulders. It can lead to a moment of panic, wondering what will happen to you if you’re late or miss a payment, a sinking feeling of falling impossibly behind, and worrying that things will get worse if you can’t afford to pay your minimum.
The good news is that you’re not alone. There are several services available to people in your shoes. You still have options for righting the ship that can help you get your finances back on track.
2. Consider a Balance Transfer Credit Card
If this is the first time you’ve had a problem coming up with the money to make your minimum payments on your credit cards, you probably still have a reasonably good credit score. If this is the case, the first option you should look into is a low-APR balance transfer credit card.
Balance transfer credit cards like the Citi® Double Cash Card do exactly what their name suggests. They allow consumers to transfer balances from other, higher-interest credit cards to new accounts with a lower interest rate.
In the vast majority of cases, balance transfer credit cards come with promotional interest rates that will provide you with incredibly low — and sometimes zero — interest on the balances you transfer for anywhere from six to 18 months.
During these promotional periods, the vast reduction in interest rates could save you enough money on your monthly payments to be able to afford them and start paying down the balance. So, once the balances are transferred from one credit card to another, you have between six and 18 months to plan and improve your finances so that you’ll be able to afford your minimum payments.
3. Contact Your Credit Card Company
When you’re in a position where you can’t afford your monthly minimum payments and you’re worried about what late payments will do to your credit score, you might not necessarily think your lender is your friend.
However, your lender has a vested interest in your success. If you default or file bankruptcy, your lender loses their money. So, it’s in their best interest to help you in times of need.
In fact, many credit card issuers have developed financial hardship programs to help those who have found themselves drowning in credit card debt. If you don’t qualify for a balance transfer credit card or don’t like the idea of opening a new account, it’s OK — all you may have to do is contact your lender.
When you call, explain that you have fallen on tough financial times and that you have all intentions of paying off your full credit card balance over time. However, you are unable to make your current minimum payment. Then ask if there are any programs the bank or card issuer can put you on to reduce your payments to a more manageable minimum amount.
You may be surprised at just how much your credit card company is willing to help you out.
4. Look Into Debt Consolidation Options
In some cases, regardless of how much money you transfer to a low-interest-rate credit card or how much your lender is willing to help you, paying your minimum payments seems to be an impossible task.
At this point, it’s time to look into other debt management options, one of the most popular of which is debt consolidation. Debt consolidation is the process of consolidating all of your revolving debts into one easily managed, low-interest payment. This helps you save money while avoiding missed payments.
Debt Consolidation Programs
Debt consolidation programs are developed by companies like Freedom Debt Relief that negotiate the terms of your repayment with your lenders on your behalf. Once you hire a debt consolidation company, they act on your behalf to reduce your payments. From there, you make one payment to the debt consolidation company that’s then divided through your debt consolidation program and sent to the individual credit card issuers.
During this process, the debt consolidation company will act as your power of attorney, taking all control over the debts out of your hands. This will stop calls from debt collectors and create a simple process for the repayment of your balances.
As a part of the program, your credit card accounts will be closed and available credit wiped out. When your account closures are reported to credit bureaus, you can expect to see a negative impact to your credit score. However, this impact will be relatively minimal and easy to overcome once your debts are repaid, unlike the credit impact associated with consistent missed payments or bankruptcy.
Debt Consolidation Loans
Debt consolidation loans are low-interest loans designed for the purpose of consolidating your revolving debts into one debt with a lower, fixed monthly payment.
With debt consolidation loans, you don’t have to give up power of attorney over your credit card accounts, and unless you close them yourself, your accounts will remain open. So, if you find it difficult not to use your credit cards when money is available on them, a debt consolidation program may be better for you than a debt consolidation loan.
5. Consider Debt Settlement
Debt settlement programs are a last resort before bankruptcy, as the process can have a severely detrimental impact to your credit score. However, these programs have saved countless Americans from having to file bankruptcy and are a great option for those who desperately need assistance.
The process starts with you entering into an agreement with a debt settlement company. The company will assess your financial position and determine a minimum payment that you will need to pay each month that’s based on your financial situation, rather than the amount of debt.
Your debt settlement company will require a power of attorney to contact your lenders and let them know that they will not be receiving payments, as you are saving for a settlement. Because your lender is not required to put payments on hold, and regular monthly payments will not be provided to your lenders, your accounts will show on your credit report as past due, tarnishing your payment history and dragging down your credit score in the process.
Nonetheless, the effects of debt settlement on your credit are smaller and shorter-term when compared with bankruptcy, and may be well worth dealing with if you find yourself with no other options for getting your head back above water.
The payments you make to the debt settlement company will be held in a savings account until there is enough money in the account to settle your smallest debt. At that point, the debt settlement company will call the lender and negotiate a reduced settlement amount, usually between 40% and 60% of the account balance.
When the first account is paid off, your payments will be saved until the process can continue with your next largest account until all of your debts are paid off.
6. Make Positive Adjustments for the Future
Regardless of which options you choose to help cure your credit card minimum payment blues, once you’ve found your solution this time around, it’s time to look forward and work to make positive changes to avoid situations like this from coming back in the future. Here are a few steps to take to ensure a more financially sound future:
- Cut Costs. There are several simple ways to go about saving a few bucks a day here and there. Keep in mind, a few bucks a day equates to $90 per month. That’s right, brewing your coffee at home rather than patronizing your local coffee shop and bringing a boxed lunch instead of ordering food through a window could save you $100 per month each.
- Work a Side Hustle. There are countless ways to earn extra money in your spare time. Do you love taking pictures? Sell rights to them on stock photo websites. Do you have a knack for fixing computers? Offer your services on Craigslist. Think of something you’re good at, then figure out how to make money doing it. There are lots of ways to earn side income that can help make ends meet.
- Avoid Food Waste. According to Futurity, the average American household wastes $1,866 on thrown-away food each year. That’s $155.50 per month. Help the environment and your wallet at the same time by planning your meals and keeping your food waste to a minimum.
7. Consider Bankruptcy Only as a Last Resort
Bankruptcy isn’t something that anyone wants to think about, but the process is in place for a reason. Life includes inconsistency — sometimes for the better, sometimes for the worse. Bankruptcy gives consumers who have no other options a way out.
Before attempting to file bankruptcy, it’s important that you exhaust all the options listed above. After all, you’ll be required to seek some sort of credit counseling service prior to bankruptcy, and any credit counselor will tell you to try all these same debt relief options first anyway.
As you would expect, bankruptcy is the option on this list that comes with the most severe impact to your credit and future financial prospects. Bankruptcy may prevent you from being able to get a loan or credit card for several years once completed.
Opening a credit card bill and seeing a penalty APR because you couldn’t afford to make your payment on time can be disheartening. However, it’s important not to panic. You’re not alone, and due to the many options available to you, you have teams of people ready and willing to help you get through your financial hardship.
Do everything in your power to get out of debt, take advantage of the resources available to you, and look toward the light at the end of the tunnel.