Credit cards and loans can be a helpful way to tie us over when we need a little extra cash. Then, life happens, and you might be late on a payment or might miss a payment entirely.

Missing a credit card payment or a loan payment can be stressful and make you feel anxious. But more importantly, if you miss a payment, it can snowball into more debt relatively quickly.

Missed or Late Payments

The first time you forget to pay your credit card or only pay the minimum balance, it might not seem so bad. You can pay off the late fee and catch up on the entire balance in the next cycle.

But depending on the terms of your unpaid loan or credit card’s policy, missed or late payments come with hefty interest charges.

Credit card companies have different policies. In some cases, they might send you a reminder and tack on a late payment fee, along with interest for the following cycle.  Credit cards, in particular, typically charge you interest for every single day you leave the balance unpaid. Some credit card companies might even cut off your reward points.

For other types of unpaid loans, there may be different consequences. If you miss a payment once, your lender may send you a reminder and expect you to make up the balance in full, plus additional fees or interest the following month.

If you continue to miss payments, the consequences may become more severe. The lender might make you pay back the entire loan, have the right to take something you own (with secured loans), and may even sue you for the debt.

Fees and interest charges can pile on quickly and can make it challenging to pay back your loans. It is essential to understand the terms of your loans so that you know the fees and charges you may be on the hook for when you miss a payment.

Your interest rate may rise

Loans and credit card providers all have policies regarding the interest rate on your loan if you miss a payment. You may incur higher annual interest rates on credit cards and lines of credit even if you miss as little as two payments within a year.

Interest charges can slow down your ability to repay the debt and throw a wrench in your plans to become free of debt.

In Canada, credit card interest rates are typically 18% and even as high as 29%. When you miss a payment, these rates can become even higher. It can become challenging to pay back interest charges at these rates, let alone think about paying back the principal balances.

Your credit score will drop

When you miss a loan or a credit card payment, your lender will report it to a credit bureau, which will affect your credit score.

A credit score is a number that represents how likely you are to pay your bills on time. Your credit score is calculated using many different factors. One of those factors is how often you make payments on your credit cards or other loans on time.

Your credit score is an essential measure of your finances. With each late or missed payment, it can get even more challenging to pay back your loan, further impacting your credit score.

Even if you were to get your debt in control, the missed payments could impact your credit score in the long run. A low credit score can have unintended consequences in many areas of your life:

• lenders may refuse your loans in the future or charge higher interest rates
• landlords may refuse to rent to you or charge you more for rent
• employers may not hire you

It is always a good idea to take back control of your finances.  Debt experts can help you with solutions to pay off your unsecured debt and repair your credit.

What happens when my unpaid loans goes into collections?

If you continue to miss payments, your creditor may move your account into collections. Debt collectors may start calling.

Debt collectors are relentless in their pursuit of the creditor’s funds. They will hound you with calls about your debt, send you letters, and contact you by any means possible, even your workplace.

In more severe cases, creditors may even pursue legal actions such as lawsuits, garnish your wage or seize your bank accounts.

What can I do if I am unable to make payments?

Unpaid loans can be distressing. Interest and fees on late payments and missed payments on credit cards can add up quickly.

Get in contact with your lender.

As soon as you know you will be unable to make a payment on your loan, reach out to your lender. They may be willing to offer some leniency if this is a one-off situation.

Seek out resources to create a plan

If you are at a point where your debt has become unmanageable, it may be time to seek additional help and resources. Take a debt quiz if you’re unsure where you stand with your debt situation.

Ask for help before it gets out of control.

When it comes to unpaid loans and debt, time is unfortunately not on our side. As time passes on, debt only becomes bigger with additional interest and fees. A debt expert can help you create a plan to manage your debt and set you up for financial success.

Debt can be stressful! If your debt has been unmanageable, debt experts at EmpireOne Credit can help. We offer credit counselling services to help you find the best way to deal with your debt and can help you repair your credit. Contact us for a free consultation.