How to Fix Your Finances After Missing a Payment

No matter how much you plan ahead with your finances, sometimes you'll mess up a payment. Whether you miss a due date or bounce a check, take a deep breath. It's not as bad as you think.

Let's review what you can expect to happen, how to fix the problem, and how you can make sure this doesn't happen again.

Missing a credit card payment

According to research from the Urban Institute, one in every 20 Americans is at least 30 days behind on a credit card payment or other nonmortgage type of debt. But you don't have to be that late to suffer consequences. Simply forgetting about a due date by a few days can land you in trouble.

What you can expect

Miss a credit card payment by as little as one day and you can be hit with a penalty fee. Late fees are capped by the Consumer Financial Protection Bureau at $27 for the first time you miss a due date; $38 for subsequent late payments within a six-month period. Those caps are adjusted for inflation every year.

But fees aren't the only penalty for late credit card payments. Most credit card issuers will also hike up your APR, typically to between 20 percent and 35 percent. The Credit Card Act of 2009 requires the issuer to send you a notice saying why it is increasing your rate 45 days in advance of the rate hike, and the issuer can only apply the penalty rate to purchases made 14 days after the notice was sent. However, if you don't make at least the minimum payment within 60 days of the due date, the penalty APR can be applied to your existing balance as well as any future transactions. There is a chance to reverse that, though, if you make the next six payments on time.

One silver lining exists for late payers: If your payment is less than 30 days past due, it will not be reported late to the credit bureaus.

How to fix it

If you make at least your minimum payment within 48 hours past the due date, your credit card company may credit you back any late payment fees.

Many credit card companies offer a 24-hour or after-hours customer service line to accept late payments, but you will most likely need the routing and account numbers of your bank account to make the payment immediately. If that's not an option, then make the payment through the credit card's website. A last resort is to use the mailing address for courier deliveries provided on your credit card statement, if available, and overnight a check to the card issuer.

Once you make your payment, request your credit card company waive or credit back your late payment fee and keep your standard APR (don't forget about that second item!). If approved, most credits may take up to two business days to be reflected in your balance.

How to prevent it

Your best bet is to set up automatic, recurring payments by no later than the bill's monthly due date. You can do this through your online banking platform, but payments made that way can take longer and are not as flexible as payments made through the credit card website. When you set up autopay with the card issuer, you can choose whether you want to pay the balance in full every month, make the minimum payment, or pay some other amount.

If your current due date is causing you problems, call your credit card company and request a new date that's a better match with the timing of your incoming cash flow. Just be aware that this change can take two to three business cycles to take effect. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)

Missing a utility payment

Forgetting to pay the electric, gas, or water bill can threaten your service and may even harm your credit score.

What you can expect

Utility companies don't typically report payments directly to the three credit bureaus (Equifax, Experian, and TransUnion). But there's a wrinkle: If the companies send unpaid bills to collection agencies, then those agencies will definitely report the debts to the credit bureaus. How badly a debt in collections will hurt your credit score depends on how high your credit score is when the collections agency reports it. If you have a higher credit score, you'll lose more points.

Most utility companies won't turn off your service for one late payment within 30 days, but they may do so after several missed payments. Consult your service agreement for applicable late payment fines. Before a utility company can shut down your service, it must have attempted to reach you and provided a final termination notice several days (or even weeks, in some states) in advance.

How to fix it

Don't ignore the bill. Pay it in full right away, or at least ask if your service provider will agree to a payment plan. As long as you're making agreed minimum payments, you'll continue to have access to the service and prevent the company from turning your debt over to a collector. Utility companies are usually willing to work with you to arrive at a solution. Taking initiative will prevent further headaches (and fees!) and keep the utility company from demanding a security deposit from you to continue service.

How to prevent it

Set up a recurring, automatic payment either directly with your utility company or through your financial institution. It's best to pay with a bank account rather than a credit card because many utility companies charge a convenience fee for processing credit cards, if they allow it at all.

When using your bank's bill payment service, check the processing time for payments. Some institutions mail out physical checks to your payees, so you may have to account for mailing times.

Don't have access to either option? Then consider a third-party bill payment service, such as Mint, PayTrust, or BillGO.

Last but not least, consider finding ways to limit your water and electricity use to give your budget some breathing room. (See also: 34 Smart Ways to Cut Your Electric Bill)

Bouncing a check

You wrote a check thinking you could cover it because a deposit you'd been waiting on had finally cleared your bank account, but it didn't. Now, your bank has sent you a notice that your check bounced.

What you can expect

First, let's talk about the actual payment: Your payee may or may not receive the money. Some banks won't process the payment at all. Other banks may ding your payee with an annoying fee. If the recipient of the check is a friend or family member, you may just get an earful. If it's a company or service provider, then you may have to pay them a fee.

On top of that, your bank will charge you a fee. Depending on your type of account, you can expect one of these fees to kick in:

  • Overdraft fee: When your checking account comes with overdraft privilege, the charge is covered and your bank charges you an overdraft fee (average $32.13 in Q4 2016).

  • Insufficient funds fee: When your checking account lacks overdraft protection, your check won't clear and your bank charges you an insufficient (or nonsufficient) funds fee (average $31.86 in Q4 2016).

How to fix it

As soon as you notice the problem, make a deposit into your account to cover the amount of the bounced check and the applicable fee. If you have money in another account with the same bank, the fastest way to do this is by logging on to your bank's website or app and doing a transfer. If you don't have another account with the same bank, then head to your bank to make a cash deposit (a check deposit will take longer to clear).

After making the deposit, contact your financial institution to request a one-time waiver of the overdraft or insufficient funds fee. Most banks are willing to credit back one of these charges to clients in good standing. Keep in mind, however, that they're under no obligation to do so.

How to prevent it

  • Know the processing time for different types of deposits coming into your bank account. For example, some mobile check deposits can take up to three business days before they clear and the funds are available in your account.

  • Keep track of your checks. Some checks, such as tax payment checks, are usually cashed after several days or even weeks. Forgetting about these may give you the illusion that you have a higher account balance than the one you actually have.

  • Set up an emergency fund in a separate account with the same bank. That way you'll be able to tap into that account to cover that bad check right away.

  • Sign up for mobile banking. This enables you to check and make transactions without stepping foot in a brick-and-mortar branch.

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