What to Do if You Can’t Pay Your Credit Card Bills

Call Your Credit Card Issuer

How do you pay bills you can't afford? Once you've exhausted efforts to bring in more money or reduce your expenses, it's time to explore your other options. Among them is the possibility that your card company is willing to work with you to provide accommodations. Credit card companies are often understanding that financial situations change and may help you avoid a charge-off of your account. Before you make contact, do these two things:

• Clarify your issue. Are you experiencing a one-time issue—for example, an emergency car repair that depleted your bank accounts? Or will you be facing the same shortfalls month after month because your income has dropped? In a few words, what is the problem? Providing a clear, concise explanation to your card issuer can be helpful.
• Create a plan. If you can, try to figure out what might help. Would skipping a payment or two put you back on course? When would you be able to resume making normal payments? Would a lower monthly payment make a difference?

If you know what you might need, you're ready to contact your card issuer—the sooner, the better. Do not wait until you're behind in payments to contact your card company, as they may be less willing to help. When you call, explain your situation in detail. You may propose your own plan or ask what payment relief options they have and whether you're eligible. Many card companies will be able to offer at least some assistance. Examples include skip-a-pay programs that let you skip a few payments without penalty or adjusted payment plans with reduced interest rates.

Get the details of any arrangement you make in writing. This helps you remember your terms and provides documentation in case there's any confusion with your card company going forward.

How Unpaid Credit Card Balances Affect Your Credit

If you don't take proactive measures, your credit can take a serious hit. Once a late payment is reported to the credit bureaus, a series of consequences can result, especially if you've chosen not to take any action. Here are some of the ways an unpaid balance can hurt your credit:

• Just one 30-day-late payment can drop your credit score. A late payment stays on your credit report for seven years, but its effect on your credit score can lessen over time.
• When a delinquency is reported, your account is no longer considered "in good standing" on your credit report.
• If more billing periods pass without you making a payment, additional missed payments will be recorded on your credit report.
• After 180 days, your credit card company may close your account and charge off your debt, resulting in an additional negative mark on your credit.
• At this point, your card issuer could sell your debt to a collection agency, which adds a collection account to your credit information.
• Payment history affects 35% of your FICO^® Score^☉ ; it's the largest single factor in determining your score. Every delinquency reported has the potential to bring your score down drastically.
• When your account is closed, the amount of credit you have available will drop. If you have other revolving credit accounts, this could affect your credit utilization, which is the amount of credit you're using compared with your total available credit. The "amounts owed" category, which includes credit utilization, makes up 30% of your FICO^® Score.
• Closing your account also reduces the length of your credit history, which measures how long your accounts have been open. The age of your accounts make up 15% of your FICO^® Score.
• Your unpaid balance is subject to late fees and penalty interest rates that can make it even more difficult to get back on schedule, pay down your debt or gain control of your credit utilization.

Do everything you can to avoid the above consequences. If you can afford it, be sure to pay at least the minimum credit amount required on all your accounts. You could also continue to revisit your budget and look for ways to bring in a bit of extra income each month. Debt consolidation could be a good option if you are dealing with high-interest debt. For help with any of the above, consider working with a qualified credit counselor (more on this below). Their services are free and can save you untold trouble and stress when your finances are in crisis. Now that you know some of the consequences of unpaid credit card balances, find out the impact on your credit report of accounts paid in full.

Get Help From a Free Credit Counseling Service

Free professional help is available for people who are having a tough time managing credit card debt. Free credit counseling services are not to be confused with for-profit credit repair, which is typically costly and ineffective. Nonprofit credit counseling offers free help with budgeting and advice on dealing with—and ultimately paying off—your debt. A credit counselor can also help you create a debt management plan to help you negotiate lower interest rates and pay off your credit card debts in three to five years.

Training, tools and support from a certified credit counselor can take some of the confusion and isolation out of overwhelming debt. Look for credit counseling agencies through the National Foundation for Credit Counseling or the Financial Counseling Association of America. The U.S. Department of Justice website also lists approved credit counselors by state.

Keeping Up With Your Payments and Your Credit

Not having enough money to pay your credit card bills can be stressful, especially if your shortfall is connected to prolonged financial issues. Try to take the opportunity to fully understand your financial situation. With Experian, you can check your credit score and report for free, and sign up for free credit monitoring to help you stay on top of changes to your credit file. Enlist the help of your credit card company and think about seeking help from a nonprofit credit counseling agency: The more light you can shed, the clearer your path forward may be.