Managing late credit card repayments

Are you continually late with your credit card repayments? If so, you may wish to look at your options to help you find a solution.

Let’s take a look at some of the consequences of late repayments and what you may be able to do if you have problems paying your bills. This could help you control your credit card debt and show lenders you’re financially responsible.

The key repayment you are required to make on your credit card is the minimum repayment. You’ll see the minimum repayment amount on your credit card statement, which is usually a monthly payment that covers a small part (usually only 2 to 4 per cent) of the total balance owing. It will also show the due date for that payment.

But only paying off the minimum amount each month may be a mistake because it could mean paying high amounts of interest making the credit card debt less manageable. And if your credit card offers an interest-free period on purchases, you could also forfeit that interest-free period until the closing balance is paid.

Depending on the lender, your interest-free period will not be reinstated unless you:

• Pay off the total closing credit card balance as indicated on your statement by the due date.
• Pay off your credit card’s account balance in full, covering what you owe until today. This includes your purchases since your last statement.

Always check with your lender about their requirements if you’d like to ensure you can make the most of your interest-free period.

Your monthly statement will show the minimum credit card payment amount you’re required to make. Generally, your lender will work out the minimum monthly payment as the higher of:

• A small percentage of the credit card closing balance, for example, 2 to 4 per cent of the closing balance
• A set dollar amount, for example, $20.

The due date will be outlined on the statement, but it could be up to 25 days from when your last statement period ended.

If you’re paying via BPAY, cheque, or transferring from another financial institution, you might want to allow some extra time to ensure your payment arrives by the due date. Because the funds may take a few days to reach your credit card account, your repayment will be considered late if it’s not cleared by the due date.

If you only pay the minimum each month, it’s possible that your debt could grow due to interest and fees accruing, which could increase further if there are also late or missed payments.

Apart from meeting your minimum monthly repayments, it can help to keep control of your credit card debt by paying as much as you can comfortably pay considering your individual circumstances. This could help you reduce your outstanding balance each month, therefore potentially reducing the amount of interest you are charged.

It can help to look at your debts by identifying high-priority and low-priority ones. For example, completing a list of your expenses, outstanding debts and their due dates could help to prioritise. Your list might include, mortgage or rent payments, council rates, body corporate fees, utilities, credit card debts, and any car loans or personal loans.

If you’re having trouble paying your regular expenses or meeting your debt payments, you may be eligible for financial hardship assistance or other support options. MoneySmart has more information on support options.

Credit card interest charges can vary significantly. Some cards may offer a lower interest rate, which can be a selling point for that product, while others may be linked to frequent flyer or other rewards programs, and come with a higher interest rate.

Some credit card issuers may also calculate credit card interest separately for balance transfers, cash advances, and purchases.

Many cards offer an interest-free period, sometimes up to 55 days. But you could lose that privilege, at least for a period of time, if you:

• Only pay the minimum amount that your credit card statement asks for
• Make a part payment
• Miss a payment.

If one of these things happens, you could also have to pay interest on new purchases from the day you make them until you pay them off. Be mindful that cash advances and balance transfers are unlikely to come with an interest-free period.

If you are trying to pay down or pay off a credit card debt, one option which may be available is a balance transfer credit card. This generally allows the transfer of existing credit card debt to a new credit card with a set period of low or no interest on the transferred amount. This may help you pay down the balance more quickly with more of your payments going towards reducing the principal debt on your card rather than paying for interest.

Other options that may be available is to find a personal loan with lower fees and interest rates to consolidate the debt.

If you are considering a balance transfer or debt consolidation, it’s important to assess all the fees and charges and any other options that may be available to you. The National Debt Helpline may be able to help you navigate some of the options.

Making late credit payments can incur a late payment fee from your lender. You could also accrue credit card interest charges or have an interest-free period temporarily withdrawn.

Defaulting or making late payments on your card may also affect your credit score. That draws on personal and financial information in your credit report to form a credit rating. And if you’re in default with your credit card repayments, your lender might contact a debt collection agency to chase up the funds. This could affect your ability to be approved for other credit – such as a home loan – in the future.

If you are continually late with your credit card payments, there may be assistance available. On example is financial counselling that could help you get in more control of your finances and debt.

Such a service may also be able to support you in negotiating with creditors or debt collectors, advise you on paying off your debt, how to better save money, and more. They may be also able to suggest financial products and services which better suit you.