One-Third of You Aren't Paying Your Bills on Time
April is Financial Literacy Month and to celebrate, the National Foundation for Credit Counseling and the Network Branded Prepaid Card Association have completed a financial literacy survey. One of the most surprising results is the number of adults who aren’t paying their bills on time each month – up to 77 million U.S. adults based on survey results.
It’s crucial to pay both your credit and non-credit bills on time each month for a few important reasons.
Paying your credit cards and loans on time helps you build a better credit score. Missing a payment could result in a negative notation on your credit report. Since payment history is one of the biggest factors in your credit score, missing a payment can damage your credit score. It can take months to overcome the damage from just one missed payment. The more payments you miss, the worse the damage to your credit rating.
Of course, there are monetary penalties for missing payments with both your credit payments and your non-credit payments like utilities. Most businesses charge some type of fee for late payments. With credit cards, the fee can be as high as $35, depending on whether you’ve been late in the past six months. On other accounts, the late fee may only be $5 or $10, but the fees add up.
Once you get behind on your payments it can be difficult to catch up and you’ll wind up paying late fees every month until you can. Always being a month behind is probably the worst result of paying your bills late. Keep in mind that if your credit card and loan payments remain past due, then you’ll rack up late fees, suffer penalty rate increases, experience a loss in your credit score, and eventually your account may be defaulted and sent to a collection agency.
Paying your bills on time each month is an important part of a strong financial foundation. There are a few things you can do to overcome a temporary inability to pay your bills. Certain types of services, like your cable, internet, and phone, can be suspended for a month or two, reducing the charges you'll have to pay. You can have services restored once you can afford to resume monthly payments.
Look for other areas where you can cut back. Eat more leftovers. Take your lunch to work instead of eating out. Split the cost of internet with your neighbor. Eliminate all unnecessary spending until your finances are in a better position.
If you’re having trouble making loan payments, call your lender to see what programs are available. You may be able to postpone your payment for a month, make interest-only payments for a period of time, or have your payments deferred for awhile.
Consider consumer credit counseling for help with your credit card problems, or for general help in getting your finances on track. A credit counselor can help you create a budget and even set up a payment arrangement with your creditors if you need it. Be aware that entering a debt management plan puts your credit cards completely off limits until the balance is fully repaid.
What you should not do is take out a cash advance or payday loan. These lending traps tend to cause more financial problems instead of solving them. Also be careful not to overdraft your checking account. The overdraft could end up larger than you calculated, leading to an even bigger hole to dig yourself out of.