Our expert warns that whether you’re talking about a credit card, a car lease or any other type of debt, the best thing you can do for your credit is to pay what you owe — in full and on time.
Dear Opening Credits,
I have a leased vehicle and am over on my mileage and excessive wear. I have paid the lease as agreed, and it is now time to turn it in. I know what they will charge me for the excessive wear and mileage fee, and I cannot pay it. What will happen to my credit? — Amy
Time is on your side, Amy. As you are not yet behind, there is much you can do that will help you to avoid the credit problems you’re so worried about.
You can prevent such credit damage by finding the cash to pay in full and on time.Think of how you can get hold of enough money to cover the balance. Begin by taking an inventory of your assets, looking for anything you don’t need that you can sell. Nothing? Consider borrowing money from a friend or family member. A personal loan can be a decent option, as long as you sign a promissory note with the terms carefully spelled out and you pay that person back in a timely fashion. Make no mistake; bad blood can be more painful (and take longer to heal) than bad credit. Of course, you can also try earning more, but if it will take a few months or more to save what you owe, your window of keeping the debt in good standing will likely close.
If no money-gathering approaches work, try to arrange a plan where you pay incrementally. This can prevent the company from reporting the delinquent account to the credit bureaus, and they won’t have to hire a collector or lawyer. Here’s what to do:
- Review your budget. Determine the monthly amount you have available for the debt by subtracting expenses from income. Reduce or eliminate nonessentials to maximize the amount you can send.
- Prepare for contact. Be ready to briefly explain why you can’t pay. The reason should be compelling. Did you lose your job or experience a medical emergency? Those are “good reasons.” Not preparing for the extra charges isn’t.
- Call the leasing company. Present your case and payment plan. Offer to send documentation, such as a cash flow spreadsheet, that supports your ability to meet those payments. Explain that you want to keep your credit clean, and ask what type of assistance they have in place to help people in your situation. Be open to suggestions.
- Back up all agreements with a letter. If the leasing company is willing to accept a payment plan, follow up the discussion with a letter. Summarize what you negotiated, thank them for their assistance during your time of need, reiterate your interest in maintaining your good credit and include your first payment. Send the letter certified mail, return receipt requested.
As you are talking with the company’s representative, mind your emotions. Though you may be frustrated or scared, remember that you are contractually obligated to pay the extra mileage and wear and tear. Stay calm. Don’t get angry, cry, threaten or swear. This is a business transaction, and you need to be logical. While there is no guarantee the leasing company will accept anything less than the complete balance when it is due, a payment plan is absolutely worth a try. They just want to get paid. Having the account go delinquent means that they will have to go through the hassle of calling you and sending letters, which costs them time and money, or hire a collection agency or lawyer, which is another expense.
Good luck, Amy, and get going. The sooner you take action, the greater the chance you’ll have in keeping your credit report clean.