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When even the minimum payment is too much

You can ask for help, but not all credit card issuers will comply

By Todd Ossenfort

The Credit Guy
'The Credit Guy,' columnist Todd Ossenfort
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the CreditCards.com expert

Dear Credit Guy,
What if we can't pay the minimum due and after contacting the credit card company and making the request, they won't work with us to reduce monthly payment and interest rate? Can we just pay them what we can? Will they sue us or garnish our wages? We actually had one credit card company reduce our rate to 0 percent, less $100 per month and a $16,000 balance will be paid off in five years, and we have it in writing, while the other company won't even talk to us, they just give us a debt consolidation organization. -- Diana

Answer for the CreditCards.com expert

Dear Diana,
Let me start by saying some credit card companies are more willing to work with consumers than others. It is good news that you have worked out a plan with one of your creditors. Be sure you stick to the plan and don't miss any payments or they might become uncooperative.

As for your other creditor, let me first explain what will happen if you do as you suggest and "just pay them what we can." Your cardholder agreement most likely includes a clause for what the card issuer can do if they receive payments in amounts less than the minimum amount due. Most consider it a late payment because the payment is not the full amount due and you will be charged a late payment fee -- these days, a late fee averages about $29. The payment will be processed, but with your interest rate charges and the late fee, it is likely the payment will be less than the charges added for the month. As a result, your balance will begin to increase each month rather than decrease.  If that isn't bad enough, and you are close to reaching your credit limit, your increasing balance each month may push you over the limit and you could then be charged an over-the-limit fee of approximately $39.

To illustrate my point, let's do a little math. With a balance of $10,000 at a 29 percent interest rate, your minimum payment would be approximately $350. The interest charged for the month would be $241.67. So, if you were to make a payment of $200, the $41.67 in interest charges that was not covered by your payment and a $29 late fee would be added to your balance. OUCH! You can begin to see how quickly your balance would get out of hand if you do not pay at least the minimum amount due. Use the CreditCards.com minimum payment calculator to see how your numbers add up.

Should you make payments that are less than the minimum due or not make any payments at all for several months, your creditor may or may not take action to collect what is owed them. If you owe a large amount -- such as our example above of $10,000 -- it is likely that the creditor will make attempts to collect, including suing you in court. A good rule of thumb to follow here is if you ever receive a summons to appear in court from a creditor, by all means appear. Without your presence, your side of the story is not told and the court will likely side with the creditor who could then be issued a judgment in the amount of the debt. A judgment can be used to garnish wages.

Ironically, some creditors are more willing to lower interest rates and monthly payment amounts after you have missed several payments rather than when you were current with payments. Rather than risk damaging your credit history and the stress of missing or making less than minimum payments, I'd recommend you contact a reputable nonprofit credit counseling agency.

The vast majority of credit card companies will work with nonprofit credit counseling agencies to lower interest rates and monthly payments for consumers when they are contacted by the agency on behalf of a consumer in your situation. You can find help at a member agency of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling.  

Take care of your credit!

How wage garnishment works -- and how to avoid it, Minimum payment calculator

Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.

The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to The Credit Guy.

Published: February 15, 2010


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