With credit card bills, don't be late, negotiate

Reaching out before the bill's due damages your credit score the least

By Todd Ossenfort

The Credit Guy

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

Dear Credit Guy,
I have about four major credit cards, and they are all at their limits. I have been keeping up with the payments, but it is getting harder to do so since they raised interest rates -- some up to 32 percent! I have not gone 30 days late yet but may have to this month. I was offered by one credit card company to close the account and make a lower payment with a lower interest rate. How would that affect my credit if I negotiated this with my high balance cards? Thank you -- Debbie

Dear Debbie,
Paying your credit accounts on time and as agreed is very important in maintaining a good credit history. Payment history is calculated as 35 percent of your FICO credit score and 32 percent of your VantageScore. So, if you can work out a repayment program with your creditors before you have any 30-day late payments that would be the best way to keep your score as high as possible.

Many creditors will require that the account be closed when placing you on any type of repayment program that allows concessions on interest rates or minimum payment amounts. The closed accounts may reduce your credit score some, but not nearly as significantly as late payments will.

I recommend that you continue your negotiations with your creditors to ease your monthly payment requirement. Before you do that, you need to know what amount you can afford each month that won't be a stretch for you. The last thing you want is to agree to a repayment plan that you won't be able to complete.

To determine the monthly income that you can put toward your credit card debt, you need to create a bare-bones budget that you will stick to. Notice I said a budget that you will keep. Be realistic with your budgeting amounts because it is likely to take you years, not months, to pay what you owe. I would also like you to include a small amount per month in the budget to begin or add to an emergency savings account. To break the cycle of depending on credit cards for unexpected expenses or "wants," you need to have available cash. A good goal for this type of savings is three to six months of living expenses.

Once you have completed your budget, then you will know how much you can pay each month toward your four credit card accounts. If you are comfortable, contact your other creditors and see if they are willing to work with you to lower your monthly payment. If you would rather not communicate with your creditors yourself, contact a qualified nonprofit credit counseling agency at www.aiccca.org or www.debtadvice.org and a counselor can assist you with getting out of credit card debt. At this point, before you are behind on payments, taking action is the most important thing you can do.

Take care of your credit!

See related: What Vantages scores are, how they work, 8 myths about settling credit card debt

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: June 1, 2009

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