Can’t pay credit card bill? Relief options for federal workers impacted by government shutdown

As the federal government shutdown stretches on, millions of government workers worry about whether they will be paid, and how they will pay credit card bills if their income dries up.

Fortunately, financial institutions are stepping up and offering credit card hardship programs and other help for these workers. The American Bankers Association has a list of dozens of banks with programs for customers feeling the effects of the shutdown.

Examples of help with credit cards that banks currently offer include payment deferrals, waived late fees and other temporary adjustments that allow people to make ends meet during a difficult time.e

For example, Bank of America, Capital One, Citi, and JPMorgan all have agreed to waive late fees and allow deferrals of minimum payments, according to the New York Times.

Many smaller banks are offering similar types of help to customers reeling from the impact of the government shutdown.

Whether or not your financial institution is offering these programs, there are several things you can do if you are struggling to pay your credit card bill and hope to get your finances back on track.  

What happens when you can’t pay your credit card

If you can’t pay credit card bills on time, it can lead to negative consequences for your credit standing. The longer bills remain unpaid, the more serious the situation becomes. Typically, these consequences progress in stages, starting with missed payments and late fees, followed by accumulating interest, and eventually, your account becoming delinquent.

Missed payments and late fees

If your payment is late – or you make a payment for less than the minimum – your lender may assess a late fee. Exactly how much you will pay should be spelled out in the disclosures you received when opening your account. Repeated late payments can have a cumulative negative effect on your credit, making it important to address overdue payments promptly.

Such late fees typically average about $32, according to a New York Times report. Even a single payment missed or made late can trigger these fees and negatively impact your credit score.

How interest starts to build

Credit cards typically come with high interest rates. You pay this interest rate on any balance you carry over from month to month. High credit card balances can lead to higher interest charges and make it harder to pay down debt.

At the end of each day, your lender takes your daily balance, multiplies it by your daily interest rate, and adds the interest charges to your balance.

Over time, this can cause your balance to rise and for you to fall deeper into debt until you begin to pay down what you owe. It’s important to stay below your credit limit to avoid over-limit fees and negative impacts on your credit.

The best way to keep interest costs from building is to pay your balance in full each month. If you cannot do so, you should at least try to pay more than the minimum payment your lender requires.

Failing to pay down debt means the interest cost will grow larger with each passing month, which may make it more difficult to manage the debt and reduce your credit card balances.

When your account becomes delinquent

If you can’t make credit card payments and find yourself unable to cover even a minimum payment by the due date, your account may become delinquent. Some lenders will give you a grace period of a week or two before deeming the account to be delinquent.

A debt collector is likely to contact you to persuade you to pay what you owe. If you owe money, collectors may request financial information to assess your ability to pay.

Once an account reaches this stage, you may be charged a late fee. If the delinquency stretches on over a longer period – such as 30 days – the lender may notify the credit-reporting agencies. This will likely cause your credit score to fall.

As time marches on and your bills remain unpaid, your account might be declared defaulted, and your account sent to collections. Not only can this drive down your credit score further, but it also may trigger additional hassles as a collections agency hounds you to pay the debt.

The long-term consequences of ignoring credit card debt

The longer you put off paying credit card debt, the more severe the financial damage becomes. Ignoring your debts can lead to serious financial trouble, especially with unsecured debts like credit cards. Here are some of the potential long-term consequences when you simply ignore the problem.

Impact on your credit score

It is possible that your credit score will not suffer if you are only a few days or even a couple of weeks behind in paying your bills. However, failing to make credit card payments on time always puts your credit score at risk.

Even a single late payment can cause a drop in your credit score. This may show up in your credit report after 30 days, although some lenders may wait 60 days before reporting your payment as late.

 ➤  SEE MORE:Why payment history is such an important part of your credit score

What is a charge-off? (And when creditors use it)

Once the lender no longer believes you will make your credit card payment, it may charge off the debt. This means that it is writing off the debt as a loss.

Experian notes that this is most likely to happen after you have missed six scheduled payments, but it could occur earlier. A lender is most likely to consider a charge-off if your account remains delinquent for between 120 and 180 days.

The charge-off itself is less likely to damage your credit score than the missed payments that preceded it.

Debt collection and legal risks

A debt collector is likely to contact you to persuade you to pay what you owe. Some collectors may be especially persistent in badgering you, which can add a lot of stress to your life.

It’s important to know your rights. Debt collectors cannot violate rules established by the Fair Debt Collection Practices Act. If they do so, you can file a complaint with the federal Consumer Financial Protection Bureau (CFBP).

It is possible that at some point, a debt collector or creditor could sue you to collect payment of the debt. Again, you have rights in these situations, so it is best to contact an attorney if you end up on the wrong end of a lawsuit. Additionally, consulting a reputable debt relief company or a debt counselor can help you understand your options if you are facing legal action or aggressive collections.

What you can do right now to get help

It can feel scary when you can’t pay credit card bills. But regardless of how bad your situation gets, addressing it proactively is always better than ignoring it. Taking action now can help you regain control of your finances.

If you wonder about how to pay off credit card debt when you have no money, know that taking some of the following steps might make your situation better.

Call your credit card issuer

If you simply cannot afford to make your minimum payment each month, reach out to your credit card company and explain the details of your situation.

The CFBP recommends calling your lender and explaining why you cannot pay the minimum and how much you can afford to pay. Let your lender know the payment amount that works for your current budget and when you expect to be able to resume minimum payments.

You might find it difficult and somewhat embarrassing to have this conversation, but being proactive can help you secure the credit card help you need to work toward a solution to your problem that also preserves your credit score. It also might help you to avoid late fees and a higher interest rate.

Ask about credit card hardship programs

When you reach out to your lender, ask if it offers credit card hardship programs. Many credit card companies offer this type of help to borrowers who cannot keep up with their obligations. You may also be eligible for a debt relief program or a structured repayment plan, which can help you manage your debt more effectively.

This type of program may allow you to temporarily defer payments or may adjust your interest rate so it is lower. Your lender may offer other options to help you get on top of your situation so you can resume making regular payments.

Enrolling in a credit card hardship program may or may not impact your credit score. It is important to ask your lender how it will report your situation to the major credit-reporting agencies, Equifax, Experian, and TransUnion.

Experian says that in many cases, temporarily reducing your payment will not impact your credit score. However, your score may take a hit if the lender reports to the credit-reporting agencies that it has made a special accommodation for you and your payment schedule.

Request a due date change

Requesting a change in your credit card payment due date might make it easier to manage debt. For example, you might request a switch so that your payment date falls shortly after you typically receive your paycheck and are flush with new cash.

Changing to a due date that is easier to remember — such as the 15th of every month — also might help to keep you from forgetting to make payments.

You may be able to request this change through your lender’s website or app, or by calling the lender directly.

Set up a temporary payment plan

If you cannot pay debts under your current payment terms, many lenders will agree to set up a payment plan that works with your budget.

In deciding whether to grant you a temporary payment plan, the lender is likely to consider your income, how much you owe, and how much you can afford to pay, according to the CFPB.

The lender may allow you to skip a specified number of payments or may lower the size of your minimum monthly payment and reduce the interest rate attached to your debt. Once you are able, it is important to start paying again, even if you are only able to make lower payments, to avoid further financial consequences.

Other ways to manage or reduce your debt

Here are some additional options you can pursue if you are struggling to pay credit card debt. These strategies can be especially helpful if you have multiple credit card debts, as they address the challenge of managing several balances at once. You might consider a debt consolidation loan, which allows you to combine your debts into a single, more manageable payment. Additionally, using a budgeting app or worksheet can be a helpful tool for tracking your expenses and improving your overall money management.

Work with a credit counselor

A nonprofit credit counselor can offer the expertise you need to help you steer out credit trouble. Credit counselors and credit counseling agencies provide a range of services to help manage debt, including financial education, debt management advice, and personalized repayment plans.

A credit counselor can set up an initial session to learn the details of your situation and will likely suggest a debt management plan and other forms of ongoing help that can help you seize control of your situation.

Before pursuing this type of help, ask about the services the counselor offers and whether you will be charged for the help. Be sure to watch out for high fees or extra fees that some counseling organizations or credit counseling organizations may charge, and always verify the legitimacy of the organization before proceeding.

To find a credit counselor, start by visiting the Financial Counseling Association of America or the National Foundation for Credit Counseling.

 ➤  SEE MORE:What to know before going to credit counseling

Consider a balance transfer credit card

A balance transfer allows you to move the debt from one credit card to another credit card that charges a lower interest rate, or possibly no interest rate at all, during a promotional period. You may have to pay an initial transfer fee, but the money you save over the long run usually outweighs this one-time cost.

Before making a balance transfer, know that if you are late in making future payments – often by more than 60 days – the lender may quickly increase the interest rate on all your balances.

It is also important to try to pay off all remaining debt before the promotional period ends, as your interest rate may surge at the end of this period.

Avoid debt settlement scams

Some companies may offer to get you out of payment troubles by offering to negotiate a debt settlement with your lender. Debt settlement programs often involve negotiating a lump sum payment to settle your debt for less than the total amount owed. Debt-settlement companies – sometimes known as debt-relief companies – are usually for-profit companies that charge for their services.

The CFPB warns you to look for red flags before choosing a debt settlement company. Such firms are not allowed to charge you any money until they settle your debt. Legitimate companies only collect fees after they have successfully settled your debt. In addition, beware of scammers who promise debt-settlement services.

Be wary of any company that guarantees that it can eliminate your debt, tells you to stop all contact with your credit card company, or tells you to stop making minimum payments.

Create a realistic budget

There are many reasons why people fall behind on credit card payments, but not having a realistic budget is often at the core of the issue.

Creating a realistic budget can help you better track how much income is coming in and how much money is going out in the form of spending.

The Federal Trade Commission suggests starting your budget by compiling a list of your recurring bills and other expenses, including the amounts you pay. Bills should include everything from rent to utilities, while expenses include things such as food, clothes, and entertainment.

Then, total up the income you generate each month. If your bills and expenses exceed your income, look for ways to trim your spending. Cutting non-essential expenses, like subscriptions, dining out, or shopping, can free up money to pay down debt.

After setting your budget, consider setting up a dedicated account for emergency savings to help you prepare for unexpected expenses.

Bottom line

If you are a government employee—or someone whose job depends directly on government operations—the ongoing shutdown may have significantly reduced your income, making it difficult to pay your credit card bills.

You might even find yourself thinking, “I can’t pay my credit cards.”

When facing difficulties in paying your bill, the worst approach is to ignore the issue. Instead, take proactive steps by exploring the many options available to help you manage and resolve your credit card debt both now and in the future.