What to do When You Miss a Bill Payment

How to handle a missed paymentWhen you go through a period of financial difficulty, your bill-paying problems—specifically, payments made late or missed altogether—will show up on your credit record and hurt your credit rating.
As soon as you miss a payment or know that you’re going to miss one, phone your lender. Doing so may help minimize the damage to your credit rating and can help avoid collection calls.

Before you call

Examine your  income and expenses and create a spending plan. After reviewing your financial situation, prepare answers to the following questions:

  • How much of what you owe can you reasonably pay and when you can pay it?
  • Can you pay the amount in full soon, but not by the due date?
  • Can you pay a reduced amount now and more later? If so, how much and when?
  • Are you unable to pay anything now and for the foreseeable future?

Be realistic: It’s better to pay a little on the date you say you will, rather than promise something and not deliver.

How to negotiate

When you talk with your lender, be upfront about your financial situation. Acknowledge that you were late in paying or that you missed a payment. Then offer what you can pay. Also, ask the lender the following questions:

  • Can you waive the late fee?
  • Can you restore the interest rate to the previous level?
  • Can you remove other punitive charges from the amount owed?

Lenders’ willingness to accommodate your requests will be greater if your credit payment history with them has been good up until your recent financial hard times. But even if you have been late making payments before or have missed payments, it’s still worth asking for an adjustment of the terms. If the lender agrees to new terms, request the changes in writing for your records.

Restore your credit

While you can’t repair your credit overnight—and steer clear of companies that make such promises—there are definite steps you can take to get back to financial health:

No new debt. Put a freeze on card use so you don’t add to your existing credit card debt. Continue to pay off your balances but stop using the cards altogether. Instead, for all purchases use cash, checks, or a debit card, which automatically deducts the amount from your checking account.

Prioritize repayments. Make a list of the cards you have, the balance due on each one, and the interest rate each card charges. Start paying off the balance on the card with the highest interest rate first, as you continue to make at least the minimum monthly payments on the other cards. Once you’ve paid off the first card, apply the payments to the card with the second-highest interest rate, and so on until you have paid off all your credit card debt.

Review credit reports. You can order your free credit report [link to article on credit report] every year from each of the three main credit reporting agencies (Experian, TransUnion, Equifax) through Examine the reports and alert the agencies if you find errors. Follow each agency’s instructions for clearing up mistakes. It can take a while for the errors to be corrected, but be patient. Clearing up your credit reports is very important.

Pay bills on time. It sounds simple enough, but it’s one of the best ways to improve your credit rating. Read more in the Federal Trade Commission’s consumer booklet Debt Collection FAQs: A Guide for Consumers.

Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by National Endowment for Financial Education.