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You've missed a credit card payment, now what?

You’ve gotten through the whirlwind that is the holidays and now your gift-giving revelry is about to be crushed by your credit card bill. According to Price Waterhouse Cooper's 2017 Holiday Spending Report, consumers spent more than $1,500 each on holiday gifts this year.

That’s a lot of cash that you simply may not have right now and while you may be tempted to hit the snooze button on paying your minimum monthly payment, be aware there are risks, such as higher interest rates, penalty payments and a damaged credit score.

Here are three important facts to keep in mind after you have missed a payment:

How credit cards work

With most credit card agreements, the cardholder has a grace period, typically 21 days, during which they don’t pay interest on their purchases made within that period. The due date you have on your statement is the last day of your grace period.

A minimum payment is due by the due date on your statement. If you pay the entire balance then you won’t have paid any interest on your purchases. Any balances that remain after the due date will incur interest at the set interest rate on your remaining balance for the next 30 days or until the balance is paid in full.

What happens if I can’t make a payment?

Your account will become delinquent and interest will continue to accrue on the balance. Credit card companies automatically report to credit reporting agencies so by not making your minimum payment you will negatively affect your credit report. If a payment isn’t made within 30 days you could be charged a higher interest rate and a penalty. You know that beautiful, promotional interest rate that compelled you to get the card in the first place? That could be gone.

If your credit rating takes a hit, this could impact your ability to borrow at lower rates or reduce the amount you can borrow in future.

Even if the credit card company doesn’t alert the credit bureau, you could still be required to pay a late penalty on top of an escalated interest rate if you miss a payment. How much that penalty is depends on the fine print of your credit card agreement.

If you keep missing payments, the card company can raise your interest rate without notice and also remove your interest-free grace period altogether, which could cost a lot over the long term. You willingly agreed to this when you accepted the terms and conditions of your cardholder agreement (the massive document that you read every single word of…).

Steps to undoing the damage

While every member’s situation is unique, I typically recommend a three part plan to mitigate any damage from missed payments.

  1. Make your payment as soon as possible.

  2. Call the card issuer and explain the situation. If you usually pay on-time, then the card company may waive any late fees and interest charges.

  3. Sign up for electronic statements—to ensure payments aren’t getting “lost” in the mail—and add a resourcing calendar reminder to ensure you pay your bill on time. If you are a regular credit card user and wanted to go one step further, add a recurring payment within your online banking for your usual minimum credit card payment.

Donna Erickson is Manager of Retail Credit at Valley First, a division of First West Credit Union, and has has been advising members across the Okanagan on their retail credit options for 25 years.

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