Late payments can lead to a huge financial problem. This is why you need to make sure that you manage your monthly payments well. Failure to keep up with your payments will lead to a lot of problems that will really compromise your financial stability.
Borrowing money places a lot of responsibility on your shoulders. You are not just expected to pay it back. You are required to pay it back on time. And it is not just any amount. You have to pay the amount that is required for that specific due date. If you cannot meet the minimum payment requirement, that will not be counted as a valid payment. If not, then it will be considered a late payment.
It seems like a good economic condition is not enough to keep people from paying their bills on time. Despite reports that the unemployment rate is down and the overall economic conditions are good, late payments are still happening.
To be specific, 7 million Americans are behind on their car loans by 90 days or more. And this is not the only account that Americans are paying off. They are also paying off credit card debts, student loans, and mortgages. They also have to pay for utility bills, subscriptions, etc.
All of these can be overwhelming if you do not manage your money wisely. If you cannot step up in managing your finances, there is a high chance that you will start making late payments.
How to cope with late payments
But what can you do if you are struggling to pay your dues on time? Should you just declare bankruptcy?
Not so fast! Even if you have a lot of overdue bills, that is not enough reason to file for bankruptcy immediately. You need to step back and analyze your financial situation first.
Here are the things that you need to do in order to cope with late payments in a smart way.
List all the late bills
Start by taking a look at all the bills and financial obligations that you cannot pay on time. To be thorough about it, you should probably make a list of everything that you owe. Include important details like the amount you owe, the monthly payment requirement, interest rate, and any fees or charges that you are aware of. Take note of the accounts with late payments – like how much will it take for you to catch up to the payments, etc.
Rank bills according to priority
The next thing you have to do is to rank all your financial obligations according to importance. Usually, mortgage payments are ranked as the highest by homeowners. A house, no matter how much it costs you, will add to your net worth. Every payment you make towards the mortgage means you own more of the home equity. So it is not surprising if this is ranked as the most important. The next would be your utility bills. You cannot afford to not pay them because it would make life harder for your family. Only after that can you consider your other debts.
Secured loans are usually ranked as more important than unsecured loans. If you fail to pay secured loans like car loans, the lender has all the right to take the car from you. This is why it ranks higher. Next would be student loans and taxes. The government can garnish your wages if you do not pay these dues. After all of these are paid off, only then should credit card debts (despite the high-interest rates), be considered.
Find a way to increase income
Once all your debts are listed and ranked according to priority, it is time to find a way to increase your income. In most cases, people have late payments because they cannot afford to pay all of their financial obligations. If this is true, then you need to increase your income. According to a survey, 45% of Americans are earning an extra $1,122 each month because of side hustles. When you are struggling to keep up with your bills, this amount is a huge deal. Start looking for ways to earn money on the side. Use your hobby or find an online job.
You also have the option to sell things that you own but you no longer use. Any amount that you get can be used to pay off your bills so you can catch up.
While it is not the same as earning, it will also help if you lower your monthly expenses. Anything that you save when you spend less can be used as extra money for your financial obligations. If you can lower your bills, it will be easier to pay.
Negotiate a debt repayment plan
In case your debts are hard to pay off, you can choose to negotiate with your creditors and lenders for a more affordable repayment plan. This is especially true for your high-interest credit cards. You want to make sure that you will not suffer the high finance charges that will be added to your balance if you will carry it over the next billing cycle.
Call your creditors and lenders and ask for a debt repayment plan that you can stick to. This has to be something that you can afford so you will no longer miss out on a payment. Make sure you consult your budget plan before you negotiate so you will know your current payment capabilities.
Boost your emergency fund
It is also important to give your emergency fund a boost if you want to be able to cope with late payments. This emergency fund can be used to make your finances secure. Since life is uncertain, it is possible for you to end up paying for an unplanned expense. When that happens, it will be harder for you to meet all your financial obligations. You will most likely end up with a lot of late payments.
If you want to avoid this, you need to have enough emergency funds to sustain your expenses for at least 6 months. Once you are current with your payments, this fund will help you avoid additional debts. If something happens that is out of your budget, you can use this money to pay for it instead of relying on your credit cards.
Dangers of late payments
It is important for you to realize that late payments can be quite destructive – specifically to your financial future. This is why you should never ignore it. Once you are in danger of missing out on a payment, you need to analyze why. You need to know what is happening to your finances so you can take the necessary steps to avoid missing a due date. If you do not act on it, things can get worse.
Here are a few things that might happen if you fail to cope with late payments.
Fees and penalty charges
Did you know that the first delinquency will cost you up to $28 on late fees? If you are late again within the next six months, this amount will go up. It might not seem like a lot but if you are trying to keep up with all your financial obligations, it is a huge deal. You need to make sure that these fees and penalty charges will be kept to a minimum. At least, if you want to be completely free of your debts anytime soon.
Damaged credit score
Another negative effect of late payments can be seen on your credit score. Do not develop the bad habit of paying your dues late because that can pull your credit score down significantly. If you were planning on buying your own house, you might not get a good deal out of the loan. A bad credit score will cause a ripple effect that will keep you from a lot of financial opportunities.
Shaky financial future
Finally, your late payments, if left unsolved, can lead to a shaky financial future. It will cause your debts to grow significantly – that means your future income will be compromised. Instead of being able to enjoy your salary, you need to pay off your debts. Not only that, it will ruin your credit score. The longer it takes for you to fix it, the more problems it will cause. It will compromise your chances of having a secure financial future.
These are only a few of the reasons why you need to take care of late payments. Make sure that it will not do any damage to your personal finances. Even if you do not have the financial capabilities to catch up, that is okay. There is always a solution to your financial issues. You just have to research your options and be open to communicate with your creditors and lenders.
