HomePersonal FinanceThe Downward Spiral of Late Payments

The Downward Spiral of Late Payments

When you open up a new line of credit, you rarely envision yourself falling behind on payments. But it happens to the best of us, and the consequences are costly for Americans trying to keep their finances in the green. According to Money Tips, 40 million Americans will miss at least one credit card payment in 2019.

Here’s more on how people get trapped inside a downward spiral of late payments—a cycle rife with pesky late fees, rising interest rates and an extra helping of stress about how to dig yourself out from underneath mounting credit card balances.

How Late Credit Payment Cycles Start

People open new lines of credit for all sorts of different reasons. Maybe you’re trying to boost your credit score, or you want to pay for a big-ticket purchase in installments. Or, maybe you’re one of the many Americans who’s had to sign up for a new credit card to accommodate sudden, unexpected expenses—like when the emergency vet can only treat Fido if you pay the balance in full within a short window of time.

And maybe a few months down the line you forget to make your regular payment. You’re slapped with a late fee, which is a nuisance, but you figure it’ll only happen once. Until you miss another deadline soon after during a particularly tight month for your personal finances. Suddenly, you’re facing another late fee plus a possible hike in your annual percentage rate (APR).

But your income hasn’t necessarily kept pace, so a larger chunk of your monthly budget has to go toward paying off what you owe on credit. Otherwise you’ll start racking up more and more debt. Credit card interest compounds, which means you owe interest on your original balance plus the growing amount of interest you’re accruing over time.

How can consumers pump the brakes on this spiral of late payments, extra fees and growing levels of debt before it gets completely out of hand?

Solutions for Addressing Credit Card Debt

Typically, “rock bottom” for the downward spiral is filing for bankruptcy—which likely means forfeiting some of your assets and bearing a mark on your credit report for up to 10 years. If there’s something you can do besides this extreme course of action, it’s worth exploring.

One possible solution for tackling serious credit card debt upwards of $7,500 is debt settlement. Enrolling in a debt settlement program means committing to making monthly deposits into a special account for months or years until you’ve saved a certain amount. Then the program will negotiate with creditors on your behalf, aiming to get lenders to accept a sum less than the original balance. While there are no guarantees, this tactic can work if creditors believe the alternative is receiving no payment at all. Reading through, you’ll notice many consumers describe finding themselves trapped in an all-too-relatable debt spiral before deciding to pursue this tactic.

Another option involves taking out a debt consolidation loan at a lower interest rate than your other debts, then using it to repay them all in one go. This strategy can work for those willing and able to repay the loan over the course of months or years to come.

You may even be able to put an end to the detrimental debt spiral yourself, provided you’re able to reduce spending and prioritize strategic debt repayment. Many consumers find it helpful to follow a prescribed strategy, like paying off debts in order from highest interest to lowest interest. If you’re going to use the so-called avalanche method, be sure to make minimum payments on every balance, even when you’re chipping away at one in particular.

And, as always, if you feel like you’re in over your head when it comes to credit and debt, talking to a credit counselor may help clarify your path forward. It’s challenging but not impossible to put an end to the cycle of late credit payments and debt. You’ll just need a realistic plan and some willpower to make it happen.


Most Popular

Recent Comments