Credit card and loan delinquencies are on the rise, reports the American Bankers Association. Existing mortgage woes, a shaky job market, and rocketing gas and food prices may be to blame, but falling behind on credit card payments is bad, bad news for all of us. Even those who with spotless payment records may begin to see interest rates creep up and credit limits shrink as banks adjust their credit card products to reduce risk. If you fear you may soon have trouble making credit card payments – or have already fallen behind, here’s what to do.
Stop charging. It sounds simple, but if you’re nearly behind on payments and can’t put an immediate end to using debt, your finances need a major overhaul. You’re on the road to disaster.
Call your creditors. It’s never pleasant to admit you can’t pay a bill, but it’s the smartest move you can make. Most creditors will be happy to help you through tight months with reduced or deferred payments – or even an entirely new payment plan. Talking with your creditors before you have a problem may even save you from high penalty interest rates or black marks on your credit report.
Consider credit counseling. Credit counseling or a debt management program can help. Depending on your situation, some plans can cut interest rates, reduce monthly payments, and save you money in the long term. Others may charge a monthly fee and offer little, if any, assistance. Keep in mind that credit counseling requires you to stop using credit and may hurt your credit score – though not as much as defaulting on an account or declaring bankruptcy.
Resist bankruptcy. Bankruptcy can seem like an easy way out of financial difficulties, but bankruptcy is a quick fix that may provide temporary relief only to cause more problems down the road. Declare bankruptcy, and you may not be able to get credit for a home or car for another seven to ten years. Worse, bankruptcy does not address the real problem: how you got so behind in the first place. If you don’t take a look at your spending and why you’re in debt, you may just go into debt all over again.
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Have you been on the brink of credit card disaster and been able to stave off a delinquency—or worse? Please share your story.