NBC: Here's what happens when you miss your credit card payments

by Herb Weisbaum

Credit card delinquencies on the rise. Despite a strong economy and low unemployment, Americans are falling behind in paying off their credit card debt.

The delinquency rate on all U.S. credit card loans is 2.47 percent — up from 2.42 percent at the beginning of 2017 and 2.12 percent in the second quarter of 2015, according to the Federal Reserve Bank of St. Louis.

That means more than $23 billion in credit card debt is currently delinquent — 30 or more days overdue — according to a new report from the personal finance website NerdWallet.

While lack of money is the most common reason for missing a payment, forgetting to pay the bill is often the case. For its 2018 Consumer Credit Card Report, NerdWallet surveyed 2,019 U.S. adults and found that:

• 35 percent simply forgot to make the payment.
• 33 percent needed the money to pay for essentials.
• 32 percent needed the money for an unexpected expense.

Kim Palmer, NerdWallet’s credit card expert, finds it “troubling” that so many people — 65 percent of those surveyed — did not pay their bill on time because they didn’t have the money. According to NerdWallet’s most-recent Household Credit Card Debt Study, income growth isn’t keeping up with some of people’s biggest expenses. 

Reasons for credit card delinquencies

“People's budgets are really stretched because the cost of certain essentials, like healthcare, food and housing, continue to go up and really put pressure on people's budgets,” Palmer said. “And so, people are turning to credit cards as a way to bridge the gap when they can't afford their monthly bills and then they’re unable to make the payments at the end of the month.”

Nerdwallet’s report found that 25 percent of those who’ve been delinquent on a credit card payment said it was because they prioritized paying off other debt.

People's budgets are really stretched because the cost of certain essentials, like healthcare, food and housing, continue to go up and really put pressure on people's budgets.

Research by the Federal Reserve in 2017 found that when there’s not enough money to cover all monthly bills, credit card bills are more likely than other debt payments — rent or mortgage, car payment, or student loan — to go unpaid or partially unpaid.

The high cost of paying late

More than one in five cardholders in the survey (21 percent) said they made a delinquent credit card payment sometime in their life. NerdWallet did the math: Using a late payment fee of $27, that’s more than $1.4 billion in penalty payments on a nationwide basis. And that’s on top of the interest charged for carrying a balance.

Adding insult to injury, falling more than 60 days behind can trigger what’s called the “penalty APR” which can be as high as 29.99 percent with some cards. That penalty APR, which makes it more expensive to carry that balance, can last for up to six months before the credit card company reviews your account to see if the rate should be lowered.

Let’s say you carry a balance of $3,000 on a card with a 15 percent interest rate and it takes you 18 months to pay off that balance. The Credit Card Payoff Calculator at Bankrate.com shows total interest will be $368. With a default rate of 29.99 percent, that jumps to $761, more than double the carrying cost.

Missing a payment can also decimate your credit score, because card issuers report delinquent accounts to the credit bureaus.

“The longer your account goes unpaid, the more damage you can do to your credit score and the more effort it will take to bring the account current,” said Bruce McClary, vice president for communications at the National Foundation for Credit Counseling (NFCC). “Once reported, a late payment could cause your credit score to drop more than 100 points in some situations.”

A poor credit score will make the cost of borrowing money more expensive and could result in being rejected for a mortgage or car loan. In some case, it could make it difficult or impossible to rent an apartment.

What you can do

All of these financial repercussions can be avoided with a more proactive approach, including:

• Use automatic bill pay
• Set up email and text reminders of upcoming due dates
• At least make the minimum payment to keep the account from going delinquent
• If your statement comes at the wrong time of month for you, contact the credit card company to see if the statement date can be changed.

When a late payment is unavoidable due to financial hardship, contact the credit card company before the due date to see if they can help you manage the situation. This would also be the time to get some expert guidance from a nonprofit credit counselor. You can find one near you on the NFCC website.
“Silence will only lead to setbacks,” McClary told NBC News BETTER. “Keeping your credit card balances under control and spending within your budget will go a long way toward protecting your credit health and your bottom line.”

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