It's another lean financial month. You'll be lucky just to make the minimum payment on your credit card bill. Should you wait until you can pay a larger portion of your bill, or pay what you can on time?
In a recent WalletHub survey, almost 16% of respondents said they expected to miss at least one credit card payment in 2019, equating to over forty million people nationwide. That's the wrong answer to the above question.
It's far better to make a partial credit card payment on time than it is to delay payment. Not only will you incur late fees (typically in the $20-$40 range) per missed payment, you'll also temporarily lose your grace period. Grace periods keep interest charges from the beginning until the end of the monthly payment cycle. Without a grace period, interest accrues from the time of purchase.
You may also incur a penalty annual percentage rate (APR) that's higher than your usual card APR (typically near 30%).
If your payment is more than thirty days late, then the late payment will be reported to the credit reporting agencies. The late payment will drop your credit score and cause lenders to re-assess your risk. You may have trouble qualifying for credit/loans or pay more for the privilege in the future. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
Convinced? Good. Now how do you avoid late credit card payments? Survey results suggest that you set a reminder.
The top reason by far to miss a credit card payment is the old classic – "I forgot." Approximately 46% of respondents gave this reason for missing a payment.
Does that excuse work anywhere else in life? It won't work with credit card companies, either – more than once. The survey found that 91% of people who asked to get a credit card late fee waived were successful (although it's unclear if a second request will be granted). Even if the fee is waived, you'll still lose the grace period and may see a penalty APR.
With all the ways to set reminders, there's no reason to forget a payment. Set regular alerts on your phone or computer. See if your credit card issuer offers reminders. Use old-school handwritten notes. Tattoo your payment schedule on your forehead if you have to. Do whatever it takes.
If all reminder options fail – or you're too busy traveling, as 9% of respondents were – consider setting up an automatic payment through your bank account. Since high-income consumers were twice as likely as low-income consumers to miss credit card payments due to forgetfulness, automatic payment may be a viable option. Consumers should only use automatic payments if they monitor their bank balance and can keep enough money in the account to avoid overdrafts.
As for the 29% of respondents who don't have enough money, the question is why. Are you spending more than you can afford to pay? Review your budget and look for ways to save.
Meanwhile, divide the money you do have to ensure that at least the minimum payment is made on all bills. Credit card debt is probably the highest interest debt you have. It must be addressed immediately after any payments on secured assets (like a mortgage or car payment).
Ultimately, if you can't pay your credit card bill on time for financial reasons, you have to charge less or find a way to get more income. It's critical to make at least the minimum payment on time to avoid making a bad situation even worse.
If you want to reduce your interest payments and lower your debt, join MoneyTips and use our free Debt Optimizer tool.