Reason for Paying Debt on Time

Difficult financial times cause some people to consider paying bills late, especially when the budget is stretched thin. When it comes to your debt accounts like credit cards and loans, paying on time saves you money and financial problems down the road. Understand how timely debt payments benefit your financial health before deciding to miss a due date.

Avoid Fees

A late payment on a debt account results in a late fee. Most creditors and lenders add the fee even if your payment is one day late. The fees vary by account, so you should read the agreement on the account to determine what you will be charged. If a late fee is assessed, you face a larger payment the following month if the creditor requires you to pay the fee on the next payment. The late fee also increases the balance of the account, meaning you'll pay more interest.

Improve Credit Score

Late payments show up on your credit report in some cases. The reporting guidelines vary depending on the creditor or lender. Some companies report a late payment right away. Others wait until the account is 30 or more days late. A late payment on your credit report lowers your overall credit score. A lowered credit score makes it more difficult to secure loans or credit cards. When the potential lender reviews your credit report, he sees the late payments, which send up a red flag. The combination of a low credit score and late payments may make you ineligible for the loan or line of credit. The interest rates on future debt accounts are likely to be higher. Paying your debts on time keeps your credit score higher and keeps late payment reports off of your credit report.

Pay Off Balance Sooner

Paying your debts consistently on time keeps those balances moving down unless you continue charging on the accounts. If you pay late, your account balance grows. This makes it more difficult to make your next payment. If you continue paying late or start missing payments completely, it is difficult to get back on track. This means it will likely take you longer to pay off the debt.

Less Stress

Late payments might cause stress, especially if you struggle to get back on track with your payments. If your late payments turn into missed payments, your account may go into collections. This means you'll receive letters and phone calls from collection specialists in an attempt to collect the money you owe. By staying current and paying on time, you reduce your stress load.