A reader reduced a regular payment to her creditor by half and wants to know how much worse things are going to get.
Dear Credit Guy,
I think you really mean, “Is there anything else the creditor can do to make my life miserable?” Receiving nasty phone calls or other communication from your creditor does not sound pleasant to me. Unfortunately, if the $50 that you are able to pay each month does not meet the minimum payment due on the account, things are going to go from bad to worse in a hurry. Each month that you do not pay at least the minimum amount due, you will be charged a late fee of up to $39 and your account balance will increase each month rather than decrease. In addition, your creditor will report to the credit bureaus each month that you are late, so your credit score will get worse each month as well.
Your original card issuer will typically attempt to collect on the account only until it is 180 days past due. Once the account reaches that level of delinquency, most creditors will place the debt for outside collections and charge off (an accounting measure the creditor uses to move your account from an asset to a liability) the account. So, you have approximately six months to work out something with the creditor before the account is charged off. To keep your credit, as well as your sanity, in better shape, it would be best to work something out before the account is 180 days past due. Keep in mind that although you are sending in payments, if you don’t meet the minimum due, you will still be considered late each month.
Depending on your financial situation, you may be able to get some relief from this creditor through nonprofit credit counseling. I recommend you contact a member of the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling and get a free consultation with a certified credit counselor. Your counselor will perform a thorough review of your finances and together you will determine your best course of action.
Should you have enough income to qualify for repaying your credit card debt through a debt management plan (DMP), you would make an affordable monthly payment to the counseling agency that would in turn pay your creditor(s). The credit counseling agency can often get your creditor to make concessions on removing late payment fees and lowering your interest rate when the creditor would not do so at your request.
If you do not have enough monthly income to qualify for a DMP through a credit counselor, you have a couple of options. You could continue to communicate with your creditor and request a payment that you can afford or you could contact a bankruptcy attorney and determine if filing for bankruptcy is in your best interest. Keep in mind that you do not have to endure nasty comments or harassment from your creditor. Report the creditor to your state’s attorney general office if you continue to receive such communication from them.
One last thing to consider — if you owe a large amount of money (more than $3,000 or so), the creditor is more likely to decide to sue you in court to collect. Be sure you attend the hearing or communicate with the attorney for the case if you receive a summons.
Take care of your credit!
See related: 8 steps to picking a credit counselor, After creating a debt management plan, stick to it, What sort of credit card debt help is best for you?, Credit card hardship programs: Little-known alternative for debtors, Is bankruptcy right for you? Our 7-point checklist will tell you