It’s been a month of unexpected bills: a car broke down or a trip to the emergency room threw you off or a pipe in the basement burst. Whatever the reason, you’re suddenly struggling to make ends meet this month and trying to figure out which bills to pay and which you can delay paying. No one ever wants to be in this situation, but the reality is that it sometimes happens. So, what should you do when you don’t have enough to make all your payments?
There isn’t a clear-cut answer because this – like all things personal finance – is a personal decision. But your top priorities should be to protect both your home and your credit score to keep yourself falling deeper into financial distress.
Below, we’ll overview different bills you may consider paying late and the consequences of each.
Protecting Your Credit Score
Missing payments to lenders who report to a credit bureau could mean taking a big hit (even close to 100 points) on your credit score. Now, keep in mind that most of these lenders have a built in grace period before the payment incurs a late fee (typically 21 days for credit cards and 15 days for a personal loan). After this late period, credit cards usually have another 30 days before being reported to the bureaus. But just because there is a grace period, doesn’t mean you want to get in the habit of paying late
Credit card payments
Credit card interest rates can vary drastically from low rates like 6% to painfully high rates tipping at 30%. But if you miss a payment for more than 60 days, you’re likely to find yourself in penalty APR. A second late payment will also be reported to the bureaus, causing more damage to your credit score.
Once you’re in the land of penalty APR (or even just high interest rates) it can be hard to get a handle on your credit card debt.
If you’re dealing with a budget crisis and know you don’t have enough to cover all your bills, it’s best to at least try to pay the minimum due on a credit. Paying the minimum due will keep you in good favor with the credit card company. Just keep in mind that it will ultimately start to cost you a lot in interest, so you need to start paying above the minimum (or the full balance) as soon as you’re able.
Similar to a credit card, loan providers will allow for a little wiggle room. But it’s often around 15 days before a late fee is levied against you. For example, SoFi* charges a late fee if a payment is more than 15 days late. The late fee is the lesser of 4% of the payment due or $5. But SoFi’s relatively minimal fee is more the exception than the rule. SoFi also offers unemployment protection, which is a way to defer your loan payments for up to six months if you lose your job through no fault of your own. Again, not a standard offer from a provider.
Wells Fargo, a more traditional lender, charges a $39 late fee.
If you feel that you simply don’t have enough money to make the entire payment, then don’t hesitate to reach out to your lender before the due date. Explain your situation and see if you can work out a deal for that month.
Protecting Your Basic Necessities
Paying your mortgage should be considered a top priority. Not only will missing payments hurt your credit score, but you also don’t want to put your home in jeopardy.
A mortgage is similar to other loans in that you probably get a 15 day grace period from your provider, but at 30 days past due it will be reported to the credit bureaus.
Rent is another place you don’t want to mess around. If you owe a landlord money, he or she does have the legal right to charge you a late fee (this can vary by state) and ultimately to evict you. In many states, the landlord is required to give you 30 days notice of your eviction.
A landlord could also send your debt to collections at his or her discretion.
If a cell phone is what you’d consider a basic necessity, then you should connect with your provider about scheduling a late payment (most likely with a fee) or ask how long you have until a notice of account past due is issued.
For example, Verizon will send customers a Notice of Account Past Due and will disconnect service if payment is not received within 5 days. Customers have complained in online forums about service being disconnected 10 days to two weeks after payment was due.
AT&T allows you to arrange a late payment with the company if you know you can make it at a future date, just not by your due date.
T-Mobile has been known to charge an account restoration fee on the billing cycle after a missed payment, even if the payment was only a few days late.
Connect with your utility providers before you go delinquent. Some of them, like Con Edison in New York, may allow for you to make installment payments. Others may offer you a little buffer if you’ve been consistent about paying on time.
Late utility payments are not reported to the credit bureaus like a credit card or loan would be, but you will likely lose power/water/internet and ultimately, the bill could go to collections.
The Danger: Bills Going to Collections
You should never get into the habit of playing it fast and loose with bill paying because there is no regulated standard for when outstanding debts are sold to collections agencies.
Sure, utility bills aren’t being reported to the credit bureaus. But if your electric, internet, gas, or water providers gets fed up with sending you pass due notices – then they might write you off and sell your debt to a collections agency.
An item in collections will get on your credit report and could demolish your credit score, making it harder to get back your financial footing. That collections item could (and likely will) stay on your report for up to seven years – even if you pay it off.
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