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Failing to pay the minimum can get you sued

By Tanisha Warner

Credit Care
'Credit Care' columnist Tanisha Warner
Tanisha Warner is the communications manager for Money Management International, where she manages educational content designed to teach consumers about personal finance topics. She writes "Credit Care," a weekly reader Q&A about debt issues, for CreditCards.com.

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Question for the CreditCards.com expert

Dear Credit Care,
Can a creditor sue you for not paying the full minimum payment? I send something every month, but I cannot make the full minimum payment. -- Cheryl

Answer for the CreditCards.com expert

Dear Cheryl,
Unfortunately, the short answer to your question is yes, a creditor could sue if you are not making at least the minimum payment due on your account. But, creditors typically only use the courts to collect after other attempts have failed.

Credit card issuers set their own minimum payment requirements, but the most common formula requires that 1 percent of the principal balance be paid, plus interest charges and any fees. The terms of your cardholder agreement will include that you must make at least the minimum payment amount due before the due date. Fail to do that and your account may be considered in default.

An account in default simply means that you have not met your part of the agreement -- making at least the minimum payment due by the due date. When an account is in default, the card issuer can take actions outlined in the cardholder agreement. The actions the card issuer may be able to take include:

  • Closing your account so no additional charges can be made.
  • Increasing your interest rate to the default (or penalty) rate, which is typically around 30 percent.
  • Demanding the entire balance be paid immediately.

To make a bad situation even worse, your card issuer may also charge you a late payment fee if you don't make at least the minimum payment due by the due date. (That can happen even if the account has already been closed, by the way.) The bottom line for your situation is that each month you don't make the minimum payment due, you could be charged the default interest rate and a late payment fee. That likely means that the balance on your account is ballooning every month -- not to mention that the account is being reported negatively on your credit reports.

You need to take action right away to get this account under control. Continuing to pay less than the minimum required will only add to what you owe and further damage your credit. To start, I recommend that you contact a nonprofit credit counseling agency, tell them your situation and request that the counselor assist you with a review of your monthly budget. You will need to gather together all your monthly bill statements and your pay stubs before you make the call or email to the counseling agency. Once you have completed a review of your expenses and income, you will have a better idea of your options for dealing with your past due account.    

If you have enough income to repay your debt, a debt management plan (DMP) may be your best option. Your counselor will work with your creditor to stop late payment fees and decrease your interest rate, which may help to bring the payment down to a manageable amount. However, in some cases, the DMP payment may be more than the regular minimum payment; either way, you will be expected to pay the full minimum monthly payment amount.

Should you not have enough income to enter into a DMP, you may consider contacting your creditor to request a hardship program. Your creditor may be willing to work with you to pay what you can afford for a short period of time, particularly if you believe your income will increase by the time the hardship program is completed. You might also research whether or not you would qualify for a Chapter 7 bankruptcy where your debt would be forgiven. To qualify, you must pass a means test, which includes earning less than the median income earned in your state. You can find your state's median income at Census.gov. Keep in mind that a bankruptcy would cause the most damage to your credit, but it may still be an option to pursue.

Handle your credit with care!

See related: Penalty rates creep higher, but become rarer, Feds cap credit card late fees at $25

Tanisha Warner is the communications manager for Money Management International, the largest nonprofit, full-service credit counseling agency in the United States. She manages educational content designed to teach consumers about personal finance topics. You can find more money management advice on Blogging for Change and MMI's Facebook page.

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

Published: February 6, 2012


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