Have you ever been late in making a payment to a lender or a creditor? If so, you might be familiar with the dire consequences of late payments.
From late fees to a hit to your credit score to a negative mark on your credit report, the consequences of late payments are anything but fun, and they can pack quite a punch.
We all know we should pay bills on time. But sometimes, life gets in the way. We go on vacation, we have other things going on, and before we know it, our due date has passed by and we’re getting notifications that we’re late on making a payment.
It has happened to almost everyone I know. The good news is, most lenders have a grace period. As long as you make your payment within this time frame, your lateness won’t be reported to the credit bureaus and you usually won’t face a late fee.
You shouldn’t get in the habit of taking advantage of that, though – especially as your lender or creditor may not be so lenient if you’re late on payments frequently.
If you’ve been a little too casual about making timely payments, then take a look at what dire consequences you may face if you’re late on paying a bill.
Your Credit Takes a Hit
Almost everyone is aware paying a bill late will cause your credit score to drop. That might sound like a simple statement, but the implications are far greater.
While your credit score may decrease, the late payment also shows up on your credit history. If you apply for a loan, a credit check will show you’ve paid late in the past.
That doesn’t look good. It’s a sign you haven’t been a responsible consumer. Lenders don’t want to loan money to people who can’t be bothered to make timely payments. They want to loan to those who will give them their money back. Can you blame them?
This doesn’t just apply to loans, either. If you apply for a place to rent, a landlord may run your credit as well. If they see a late payment on your report, they’re less likely to want to rent to you. You’ll need amazing references and possibly proof you can afford to pay to overcome their skepticism.
What’s worse is late payments will stay on your credit report for up to 7 years. That’s a really long time! Don’t let one mistake haunt you for years to come. It’s not worth the hassle.
You’ll Incur More Expenses
Fees are never fun to deal with, and if you pay late, or your payment is returned (which means you also might incur fees from your bank), that’s what you’ll have to deal with.
The late fee for most credit cards is $25, for example. That’s a decent amount on top of your minimum payment.
Late fees for student loans can vary. Some are around 5% of the unpaid amount due. If your monthly payment is $250, that’s an extra $12.50 added on.
Don’t forget, interest will continue accruing even if you’re not paying. When you do get around to paying, your payment will likely go toward fees and interest first, and principal second. In the case of debt, that means you’re not making as much progress on paying it down.
On the topic of interest – making a late payment can cause your interest rate to increase in some cases (known as a “penalty” rate), especially with credit card debt. If you have a credit card with a 0% interest rate promotion, making a late payment can invalidate it. Always read the fine print.
Lateness Can Turn Into Default
I hope most people miss their payments due to an oversight, in which case, this might not apply. If you’re actually having trouble making payments, latenesses can turn into defaults.
You want to do everything in your power to avoid this, as defaulting has worse consequences than simply being late. It can take months for your debt to be considered default, but that doesn’t make it any less serious.
Your debt will be sold to a collection agency, and you’ll have to deal with phone calls and notices about it. Debt collection agencies can even sue you under certain circumstances.
If that doesn’t motivate you to make payments on time and to take your bills seriously, I don’t know what will!
How to Prevent Late Payments
If you’re worried about accidentally making a late payment, there are a few actions you can take to prevent it from happening:
Automatic Payments: Set yourself up with automatic bill payments, either through your bank, or through the institutions you owe. Most will do this free of charge, and you reduce your chances of paying late greatly.
Set Reminders: I would follow up with this even if you’re on autopay. Simply set up a reminder in Gmail or in your phone calendar to pay your bills when they’re due. You should check your bank account to ensure you’re not being double-charged, and that your payment successfully went through.
If you’re juggling a lot of payments, you also need to make sure you have enough money in your checking account to cover them. Having reminders set a few days beforehand can help you prepare.
Use an Online System: If you’re already using an online program like Mint.com, You Need a Budget, or another financial app, you should be able to set reminders there as well. Some apps do it automatically if you’ve linked your account information to them. There are even specific bill tracker apps you can download to your phone to be reminded on the go!
Go Old Fashioned: If technology doesn’t always work for you (let’s be honest, there are always hiccups!), you might feel safer going the old fashioned pen and paper route. Do you have a desk calendar or a wall calendar you can use? Go through them and mark down when your bills are due each month. Get in the habit of checking it.
If all else fails…again, sometimes life happens and you slip up. If you’ve been in excellent standing with the particular institution you were late in paying, pay off your bill in full (if possible), and then contact them to ask if they can waive the late fee. If you made the payment within a 30 day window, the lateness probably won’t be reported to the credit bureaus, but ask for confirmation.
The worst thing you can do is ignore your bills and think you won’t be affected. Being late on payments will eventually catch up with you, and it’ll stay with you for years. Be responsible and take action now to prevent it from happening!
Have you ever made a late payment before? Did you have to face any of these consequences? How do you prevent late payments from occurring?