Falling behind on credit card payments can hurt your credit score. 35 percent of your FICO score is made up of your payment history, and payments that are 30 days late, 60 days late and 90 days late are all reported to the credit bureaus. However, sometimes it becomes impossible for people to make even minimum payments. Several options are out there for people who find themselves in this situation--some of which may hurt your credit more than others.
Try to Consolidate or Speak With Creditors
Your first course of action, if possible should be to try to consolidate your debt to lower your monthly payments. This could involve applying for a personal loan, or for a credit card balance transfer if your credit is good enough to obtain such a loan. By consolidating all of your debt, you may be able to lower your monthly payments into one lower payment. While this may ultimately result in you paying back more money because you are stretching out the time it takes you to pay back the money, it can allow you to avoid late payments on your credit cards and buy you time to get the money to pay back your debts. If this is not an option because you do not qualify for a personal loan or balance transfer, or because you won't have the money to make even reduced payments, then you should call your creditors and explain your situation. Your creditors may be willing to work out a payment plan with you or lower your monthly payments for a set amount of time.
Try to Negotiate a Debt Settlement
A debt settlement involves paying your debt for less than the full amount owed. Many credit counseling agencies negotiate debt settlements for consumers, but credit counseling agencies often charge a fee for this service, and it is possible to negotiate such an arrangement yourself. If you do work with a credit counseling service, make sure it is a not-for-profit credit counselor and that it is a legitimate company by reviewing its Better Business Bureau rating. If you decide to negotiate a debt settlement on your own, you should stop making payments for several months. Creditors are more willing to work with consumers and negotiate a settlement if the account is delinquent and/or about to be sent to collections because it is more advantageous for creditors to settle with a customer than to send the account to collections. During this time, save the money you would be using to pay your credit cards so that you can offer that money as part of a lump-sum settlement. After you are several months behind, speak to a person at the credit card company with the authority to make decisions. Offer to make one large payment, or a series of large payments, for less than the amount of your debt if the company will accept the reduced amount as payment in full. Be prepared to negotiate over the amount of money the creditor will accept. Before sending any payments, get the terms of the settlement in writing, including the full amount you will pay and how you will pay it (whether you will pay it all at once or over several months). Ensure that the written documents regarding the settlement state that the creditor is accepting the lesser amount as "payment in full." Once you have the terms of the settlement in writing, send a check or money order to your creditors. Do not give anyone access to your bank account. Settling debt for less than what you owe hurts your credit score, but is not as detrimental to your credit score as bankruptcy. Be aware that you may also get charged taxes on the amount of debt forgiven because this is considered income.
Bankruptcy
Bankruptcy should be your last option if you are unable to pay your credit cards. Depending on your income, assets and amount of debt, you may be able to get the full balance of your credit cards discharged in bankruptcy, or you may have to agree to a payment plan in which you pay back a portion of your debt. If you are considering declaring bankruptcy, you should speak with a qualified bankruptcy attorney, as there are very specific notice requirements and court documents that need to be filed. Bankruptcy has a dramatic impact on your credit score and can remain on your credit report for up to 10 years.
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