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Just One Late Payment
Can Ding Your Credit

By Erica Sandberg

Dear Erica,

This month we are unable to pay our credit card bills for the first time. We have no more money to give after paying for our house and food. My husband has been out of a job for eight months, and I am working at Target which supplies us benefits — but I don’t bring in enough to carry us both and pay the bills. I’m sorry to say that we owe $4,000.  What should we do now, Erica? We are trying. My husband is always looking for work. I need to know what to do with these cards so the good credit history we have made since coming to the U.S. is not totally ruined. Thank you in advance for your kind help. – Rida

Hi Rida,

How wonderful it is that you’ve never been late on a payment! To present and future creditors, that counts for a lot. It also says good things about the way you’ve managed your finances and credit during this crisis.

I get that you’d like to preserve your excellent credit rating, but you may have to accept that a ding could be in your future. If you have only enough cash to cover your most fundamental living expenses, there won’t be any extra that you can send to those you owe. It’s a matter of simple math:

Fixed income minus essential bills equals the amount you have left over for other bills.

If the remainder is tiny (or nothing), you won’t be able to send the minimum requested payment, and the credit card company will react. They’ll send notice of your delinquency to the three major credit reporting bureaus, and that negative information will remain on your files for a total of seven years.

Would one skipped payment cycle wreak havoc with your credit rating, though? In the short run, it will have a detrimental effect, as recent activity is factored into your FICO score more heavily than what happened years ago. However, if you were able to get back on your financial feet quickly and make all subsequent payments by their due dates, your credit scores will rebound in a matter of months.

Unfortunately, unless your husband secures a new job in the next month or so, you may be in for a few more missed payments — and greater credit damage. Because of this distinct possibility, I would like you to take swift action. Contact your creditors to see if you can work out a hardship plan with them. Because you’ve been such a responsible customer so far, they may give you a break and permit you to make no or smaller payments for a set period of time. While these arrangements may not protect your credit reports and scores (in fact, they probably won’t), they can help to reduce the very real risk of your creditors sending delinquent accounts to collections or suing you for unpaid balances.

I also urge you to visit a nonprofit credit counseling agency. These are organizations that have been set up to help people like you — borrowers who are struggling and seeking answers. There is no charge for counseling, and you’ll have the opportunity to meet with a professional who will review your budget and debt and then suggest some sensible methods of resolution. For example, if the credit counselor discovers that you can reasonably reduce spending, he may recommend a debt repayment plan that allows you to pay your accounts through the agency. Or, he may have resources for employment services. You won’t know until you make an appointment, so put that on today’s to-do list.

I wish you and your husband the best of luck — and am sending serious good job vibes.

Erica Sandberg is editor at large for Bankrate’s Credit Card Guide, columnist and features reporter for CreditCards.com, and the consumer protection spokeswoman for Western Union. She is also a contributing personal finance writer for the San Francisco Chronicle’s online edition, and author of Expecting Money: The Essential Financial Plan for New and Growing Families. Prior to her current work as a national money and credit expert and journalist, Erica was affiliated with Consumer Credit Counseling Service of San Francisco for 10 years.

Views expressed are the personal views of the author, and do not represent the views of the National Foundation for Credit Counseling, its employees, its members, or its clients.

 

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