Budgeting / Living With Debt

4 Ways To Handle Your Credit Card Payments If You’ve Lost Income

By Wednesday, September 23, 2020

This article is sponsored by CreditRepair.com.

Losing any part of your income is an awful experience for just about anybody, but if you’re one of the millions of people who also has credit card debt, even the slightest change in earnings can feel like being kicked in the stomach when you’re already down. Even worse, missing a single payment can set off a chain reaction of negative financial repercussions. It starts off as a single late fee, but if you don’t find a way to pay within the next 30 to 60 days, you’ll likely find your credit score tanking due to delinquency. Regardless of how timely you were about your bills in the past, one mistake like this can haunt your credit report for years, hindering your ability to make major purchases or even sign a lease.

What are you supposed to do when you can’t keep up anymore? In my experience, I’ve learned the absolute worst thing you can do is pretend like the bill doesn’t exist and wait until you make money again to fix it. 

And while it’s tempting to blame this kind of mistake on forgetfulness or irresponsibility, but this isn’t always the case. Earlier this year, one survey by WalletHub found that 30% of people in the US who were late on credit card payments reported that it happened because they simply didn’t have enough money. And this was before COVID-19 was declared an international pandemic. Although it’s easy to say, “Well, the solution is simple, don’t get into debt,” the reality is that it is not an option for everyone. One survey of US residents found that an estimated 37% of families rely on credit cards to cover basic expenses

Although it’s easy to fall into a cycle of complete regret and despair, dwelling on the past never does any good to help your situation. Fortunately, if you find yourself struggling to pay your bills, it’s possible to spare your finances from being seriously impacted by making a few emails and phone calls. It just requires being diligent and proactive about fixing your situation.

Keep reading to find out what you should do if you find yourself unable to make your credit card payments due to a loss in income.

If you’re struggling to grow your credit score, CreditRepair.com can help. They stay on top of your credit score and work with bureaus directly to make sure you don’t have incorrect or fraudulent information on your report.

1. Notify your creditor as soon as possible about your situation to avoid any potential late fees.

When I was going through my own financial struggles several years ago, I thought that the best way to stay calm was to pretend my credit card bills didn’t exist. Obviously, this mentality backfired and eventually landed my debt into collections, which in turn negatively impacted my finances for the majority of my twenties.

No matter how helpless or devastating your situation seems, do not delay telling someone about it. If your credit card payment is due on the 19th and you lost your job on the 3rd, call your issuer that very same day. Don’t wait until the day before they’re due, or worse, after. Even if you know you have enough cash to make this month’s payment, let them know ahead of time that next month might be different. Although it may seem intimidating at first to tell someone from a company you owe money to that you’re unable to pay your bills, taking that initiative and being honest about your hardship demonstrates you are acting in good faith, which may make them more willing to work out a solution with you. Be as detailed as possible about your employment status and how you plan to budget, even if you don’t have new income lined up yet. 

When my own income unexpectedly dropped earlier this year, I immediately notified my credit card company and informed them that I would not be able to maintain my normal $150 payments. I also told them about how I was already seeking other employment opportunities and created a new budget to get through the year. After some negotiation, I talked them into cutting my payment to $80 while temporarily suspending any late fees. But none of that would have been possible if I didn’t pick up the phone.

You may have a few different options, too. If you recently lost your job, but have some savings stashed away, for instance, you may be able to negotiate your payments down, without the interest capitalization. However, if you don’t have a sizable amount of savings set aside, or if you plan on using that money for survival, you may consider asking your lender to defer your payments. Some companies may be willing to waive a month or two without penalty fees while giving you a little extra time to gather funds. Other companies may suggest a hardship program that lowers your monthly interest.

Of course, there’s no guarantee that every company will respond in the same way. But generally if you demonstrate that you can pay something, that is always better than nothing. And even if you can’t pay right away, it is definitely worth the extra effort to at least show your lender that you genuinely care about making things right.

You can still grow your credit score while you’re working to pay off debt. CreditRepair.com has years of experience helping customers get to where they need to be, credit-wise. Head here or give their team a call today to learn more.

2. Rewrite your budget to make sure you don’t fall behind any further.

When you’re dealing with a lot of uncertainty around your income, it’s critical to rewrite your budget from scratch to avoid falling into more debt. This may require temporarily cutting some recurring non essential expenses, like premium TV subscriptions and takeout food, until you can find steady employment again. However, if you’re dealing with an income loss that’s quite drastic, it’s possible you’ll have to switch to a bare bones budget to stay afloat with your payments.

You can do this by first figuring out what your mandatory survival expenses are, such as rent, food, and utilities, including internet and phone service. Once you have that figure, multiply by six to estimate what it would cost you to live with no extras if you aren’t able to land a steady job within the next six months. Subtract that from your new income to figure out how much money you can realistically afford to put toward debt. If that figure is below your regular minimum payment, notify your creditor immediately. 

Alternatively, if you’re living solely off an emergency savings, divide the total amount you have stashed away by at least three to get an idea of how much cash you’ll have on hand if you’re unable to land a new job right away.

After you’ve come up with a new plan, it’s wise to develop a system to hold yourself accountable. There are several personal finance apps you can download directly to your phone that will automatically track your spending for you, but you can also track everything manually. (For me, I’m a very visual person, so I prefer to track my spending in a journal. But you may prefer the convenience of an app to keep you on track.) In addition, you may want to consider setting your bills on autopay to minimize the stress of having to remember when to pay things while trying to find a new job. This will help you stay organized even when things seem hectic and out of control. But more importantly, it will serve as a daily reminder that you will one day get out of the mess you’re in. 

3. Check on your credit report to make sure you’re not still being reported as late.

After you speak with your credit card company or other lenders, it’s critical to follow up with your credit bureau to make sure that everything on your report is accurate. While a lending company may accept a deferred payment without penalty, information about your payment status doesn’t always get automatically relayed to the credit bureaus. This could happen due to a number of reasons such as clerical or computer error, but regardless, it is your responsibility to make sure that everything on your credit report is accurate. A single late payment can lower your credit score by as many as 100 points, which can instantly take you from being in “good” standing to “fair” or “poor” territory. Unless you take action to counteract these negative reports, they can stay on your file for up to seven years. 

There are several ways to gain access to your report directly from a bureau, but personally, I’ve found it beneficial to have a professional look through every detail  to ensure that I wasn’t missing anything. And this isn’t just about ensuring my own credit history is up-to-date. I’ve since learned that mistakes on a credit report can sometimes signal if someone else has used your identity to open up an account in your name.

If you’re interested in making sure your report looks good, check out CreditRepair.com. Their agents can help you find and dispute inaccuracies on your credit report, which may help improve your overall credit score. This is crucial if you’ve recently lost employment income and are looking into services like debt consolidation, or if you have any plans to take out loans in the future. But more importantly, their agents can educate you about credit, as well as assist you with forming a plan to fix your score if you’re struggling to meet your payments.

4. Immediately look for ways to generate new income.

Once you’ve formed a plan of action that satisfies your lenders, you still need to make sure you follow through with your agreement. Deferring payments will buy you some extra time to get your finances together, but figuring out how to generate more income should remain a top priority.

If you lost your job or received a reduction in work due to the pandemic, it may be a good idea to apply for unemployment benefits until you can find steady employment. Even though the benefits might not measure up to what you earned as an employee, having some income is better than none.

Another option is to consider a side-gig. With many companies transitioning to remote work, it’s become quite common for people to take on side projects such as freelance design, transcription, or virtual tutoring. If you’re really in a pinch, you can sell items such as clothes, household decor, or artwork to earn some quick cash. 

Dealing with an unexpected loss of income is never easy, but the sooner you act, the sooner you’ll be able to save your finances from long-term damage. No matter what your individual financial circumstances are, Creditrepair.com can help you form a custom plan to get you through your hardship and prepare for your future.

Image via Unsplash

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