I fell behind on a bunch of my credit cards because I lost my job a few months ago. I have a new job now, but I have no idea where to start with these credit cards. How do I decide how to set the right priorities to bring my accounts current?
George from Albany, NY
Hi, George,
Sorry to hear that you’ve been facing some challenges with your credit cards because of unemployment. It’s one of the most common reasons our clients give for why they’re having trouble with credit card debt. The good news is that there are steps you can take to catch up quickly, which I’ll outline for you now. If you have any questions, please give us a call at (844) 276-1544 to speak with a certified credit counselor so they can assist you directly.
What’s the Fastest Way to Bring Past-Due Accounts Current?
If you’ve fallen behind on credit card payments, this video explains what steps you need to take to catch up and bring those accounts current as quickly as possible. And if you have multiple accounts that are behind, there’s a solution that can help you bring them all current all at once.
If you have a credit card bill that has fallen past due, you probably notice late fees, penalties, and potentially higher interest rates on your credit card statement.
The fastest way to get an account current is to look at your statement and see the amounts due. You may also want to call the credit card company and ask them what’s the least amount you can send them to bring the account current. Once you bring the account current, the late fees will stop, and it will stop reporting late on your credit card statement.
If you’re unable to make the amount that is due to bring the account current, at least make the monthly payment to keep it from rolling more than 30 days late. In other words, if you’re 30 days behind, you can continually stay 30 days behind as long as you continue to make your monthly payment, and you do want to try to avoid it from rolling to 60 days late because ultimately, the further it rolls behind you run the risk that the account will charge off and at that point, you’ll be unable to bring the account current.
This all becomes way more complicated if you’ve got multiple debts with multiple creditors; you don’t want to fall behind on more than one card because ultimately, in your attempt to try to bring one account current, you will fall behind with others.
There are programs available through nonprofit credit counseling agencies that can help you pull those debts together into one payment, and the credit counseling agency will work with each of your individual creditors to help you bring all of your accounts current at the same time as a lot of creditors will re-age accounts after you make three payments on a credit counseling program and those that don’t the credit counseling agency can help you make the minimum amount due to bring all those accounts current, stop late fees bring interest rates down, and help you get out of debt faster.
So if you’ve got one account, call the credit card company, do the best you can to keep the account from rolling further past due. Make the minimum amount due just to bring the account current. If you’ve got multiple accounts falling past due or about to fall past due, I strongly recommend you call a credit counseling agency.
5 steps to take to bring past-due accounts current
1. Check your statements
Look over your statements and note how much you owe, as well as the minimum required payment and the due date. Be aware that to bring the account current, you will need to pay all of the arrears (the full amount you’ve missed) and the current month’s payment. We have a worksheet that will help you track your credit card debt load.
I don’t know what your new income is, but review your budget to see if it would be possible to catch up quickly on all the accounts where you’re behind.
2. Contact your creditors
One of the worst mistakes you can make is not contacting your creditors. They may be willing to work with you, especially if you’ve been on time in the past prior to this period of unemployment. Explain to them how you got behind and what your situation is. Ask them what is the least amount they will take to bring the account current. They may be willing to bring the account current once you pay a certain percentage of the amount that’s past due. This is known as re-aging your account. It will stop late fees and reporting missed payments to the credit bureaus that damage your credit history.
3. Pay the minimums
Even if you can’t pay the entire past-due amount that you owe, make sure you make the minimum required payment by the payment due date. This will keep your accounts from falling further behind. So, if you’re 30 days behind already and you make the minimum payment, you will stay 30 days behind instead of falling to 60 days behind.
4. Avoid allowing accounts to fall past 60 days.
Keeping accounts from falling further behind is especially important for accounts that are 30 days behind for two reasons.
First, some credit card issuers will not report an account as past due to the credit bureaus until it is 60 days past due. So, you may be able to avoid the missed payments in your credit history. You can check your credit report to see if your creditors have already started to report missed payments to the credit bureaus. Currently, the credit bureaus are allowing consumers to download their reports for free once per week through annualcreditreport.com. So, take advantage of this and see how your accounts are being reported.
Even more importantly, keeping an account from falling 60 days past due may help you avoid penalty APR. This is the penalty interest rate that applies when your account has fallen behind, and it will be much higher than your regular rates. Penalty APR can make it much more difficult to catch up. And once it’s applied, you generally have to bring the account current and make six on-time payments to restore your original interest rates.
5. If you have multiple accounts that are behind, contact a credit counselor
If you have a single card that you are dealing with, then the steps above will help you bring the account current. When you have multiple accounts that are delinquent, you may need help from a nonprofit credit counseling agency.
You can call a certified credit counselor and enroll in a debt management program (DMP). This program will consolidate your accounts into one monthly payment, as well as minimize interest and remove penalties you’ve incurred on your past-due accounts.
What’s more, most creditors will agree to bring past-due accounts current after three consecutive payments on a DMP program. This means you can re-age all of your past-due accounts at once instead of bringing them up-to-date one at a time, which is what you’ll be doing on your own. You can stop credit damage much faster this way, and while you’re enrolled in the program, you will start building positive credit history on all your accounts with each on-time program payment you make.
Dangers of past-due accounts
- Late fees – Most creditors will assess late fees if you are even one day late with your payment. Late fees can run up to $40 for the first time you miss a due date.
- 0% canceled – If you have a promotional interest rate such as 0% APR for purchase and are late, the zero percent interest rate will be canceled.
- Missed payments on your credit report – If the lender reports you for missed payment to the credit bureaus, that credit report notation can rapidly reduce your credit score. The further you fall behind, the faster your score will fall.
- Penalty APR – When you fall more than 60 days behind with your payments, most creditors will apply penalty APR. These rates are much higher than regular purchase interest rates, averaging 29.99%.
- Charge-offs – If you don’t communicate with your credit card companies and don’t pay anything, after 90 days to 120 days, the credit card company will close your account and charge it off. Then debt collectors will be pursuing you. A charge-off is when the credit card company has given up hope that you will pay and has closed the account. You will no longer be able to use the account, and it can get sold to a third-party collector. That will create a collection account on your credit report, which has even more serious consequences for your credit.
The cost of penalty APR on past-due accounts
You wind up paying a lot more when your interest rate goes up with penalty APR. Currently, the average credit card interest rate is around 16%. Penalty APR is typically 29.99% on most credit cards.
So what would happen if your rate on a $5,000 balance went up to 29.99% because you were 60 days behind?
With a starting balance of $5,000, the minimum payment requirement on many credit cards would be $150. At 16% APR, $66.67 of that minimum payment would cover accrued monthly interest charges. However, at 29% APR, $120.83 of that $150 payment goes to cover interest charges. So, it takes much longer to bring the account current because you will be spending so much just to cover those accrued monthly interest charges.
