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It's safe to say no one wants a past-due account. But life happens—maybe you lost your job, got married (or divorced) or totaled your car—and you might have little savings to fall back on. With so much on your mind, a credit card or loan payment can easily get missed.
A debt is considered past due when you miss making a payment by the due date. When you're trying to juggle one, two or even multiple late payments, along with the added fees and penalties, your finances (and your credit) can quickly spiral out of control.
Fortunately, there are ways to pay off a past-due account. Doing so with expediency can help you avoid some of the major consequences. Here's how.
1. Assess the Situation
If you've missed one or two bills, this might be an easy step. But if multiple outstanding debts are unpaid, you may have to sit down and take inventory of how much you owe. Gather all of your bills and look at the due dates listed on each statement. See which payments you've missed, which ones are due soon and which give you a little breathing room before they are due. From here, you can set goals for catching up on all of your payments.
2. Contact Your Creditors
Lenders and loan servicers don't want you to be late on making your payments any more than you do. For that reason, they may be willing to work with you to bring your past-due accounts current. If you call and explain your situation, your lender may be willing to offer an extension, forbearance or another way to repay your debt. But you'll never know unless you contact your creditors directly.
And depending on the bill, you might also check out hardship programs like mortgage forbearance, rent relief and credit card programs. While credit card hardship programs won't eliminate your credit card debt, they may temporarily reduce your payment, eliminate late fees and other charges or offer options that can help you avoid missing a payment in the future.
3. Pay the Full Balance
If you're financially able, the best way to remain current on your bills is to pay the balances in full each month on or before the due date whenever possible. If you slip behind, however, you may try paying off the bill that's the most overdue, has the highest interest rate or is the smallest in amount. The longer you wait, accrued interest and other fees can add up and make paying off past-due accounts even more difficult.
4. Create a Payment Plan
If you can't pay the full balance, you might consider paying down your past-due accounts by creating a repayment plan. A plan helps you prioritize which debts you want to tackle first, second and so on. Two methods for achieving this goal are:
- The debt avalanche method: Paying off debt with this method entails making minimum payments on all your debts, then using any money you have left over to pay down the account with the highest interest rate. Once that account is paid off, put the most money to the debt with the next-highest interest rate and so on until all your debts are paid off.
- The debt snowball method: With this method, you make minimum payments on all your debts and use any extra cash to pay off the debt with the lowest balance before moving to the next-smallest debt.
You can also use Experian's credit card payoff calculator. The calculator will show your payoff date, total interest and principal paid and your payment schedule.
Credit Card Payoff Calculator
†The information provided is for educational purposes only and should not be construed as financial advice. Experian cannot guarantee the accuracy of the results provided. Your lender may charge other fees which have not been factored in this calculation. These results, based on the information provided by you, represent an estimate and you should consult your own financial advisor regarding your particular needs.
5. Consolidate Your Debts
If your credit is good, you may qualify for a low-interest debt consolidation loan or balance transfer card as part of your payment plan. By consolidating your debts into one payment, instead of many, you can use the money you save in interest to pay off past-due accounts even faster.
Debt Consolidation Loan
A debt consolidation loan combines multiple debts into one new loan, making it easier to budget and manage your monthly payments. If you have good credit, you may qualify for a lower interest rate, which can save you money and help pay off past-due accounts faster. However, falling behind on your loan payments can mean being charged extra fees and penalties. Missed payments on the new loan can put your credit score at risk.
Balance Transfer Credit Card
A balance transfer credit card lets you transfer existing credit card balances and often other higher-interest debt to a new card with little or no interest for a limited time. Some balance transfer cards offer 0% interest during the introductory promotional period, saving you a bundle in interest charges. However, if you fail to pay off the balance in full within the 0% interest promotional period, you'll be stuck paying a higher APR on your remaining debt.
6. Work With a Credit Counselor
Sometimes paying off past-due accounts requires calling in the experts. A counselor or nonprofit agency like the National Foundation for Credit Counseling (NFCC) can review your finances with you and help you devise a plan to repay your past-due accounts. They may also work with you to come up with a strategy so you can meet your financial goals going forward.
Credit counselors may charge fees, like a setup fee and small monthly charge, for their services, particularly if they create a debt management plan for you. However, the fees they charge (if any) are usually minimal and meant to cover their expenses rather than turn a profit.
What Are the Consequences of Past-Due Accounts?
If you're juggling a half dozen bills, all with different due dates, one can easily slip through the cracks and become past due. Left unaddressed, there are several consequences that may result from an account being past due.
- Late fees: Most banks and credit unions charge a maximum late fee of $25 or less. But if you make many late payments over a certain period of time, say six months, you may be charged considerably higher fees. Some companies charge no late fees and have increased the flexibility of late payments—but this is rare.
- Penalty APR: A penalty APR can be triggered if you fail to make your monthly credit card payment on time. That means you may pay a higher interest rate on future purchases. If you can't bring a past-due account current within 60 days, the penalty APR may apply to the current balance as well. What's more, if you're currently taking advantage of a credit card's promotional 0% APR and miss a payment by even one day, you may lose that temporary interest rate.
- Tarnished credit report: While consistently paying your bills on time can help give your credit a lift, delinquent accounts can lower your credit score and make it more difficult to qualify for financing in the future. If you miss a bill payment, it can get reported to the credit bureaus once you are at least 30 days past due. If you can bring your account current before the 30-day mark, your credit won't take a hit. Remember that past-due payments can remain on your credit report for seven years from the date the account first became past due.
- Charge-offs: If a creditor has tried and failed to receive a payment from you, the creditor may close your account and charge it off. When this happens, the charge-off will appear on your credit report.
The Bottom Line
At some point, nearly everyone makes a late payment. After missing a payment, it's key to bring your accounts current now and manage your finances in the future so it doesn't happen again. Rebuilding your credit can take time, but rolling up your sleeves and looking at the ways to pay off past-due accounts can go a long way in turning a negative into a positive. As you put in the hard work, make sure to check your credit score regularly to track your progress.