What if you only pay the interest each month on your credit card for a few months?
It’s less than the “minimum payment”, but they’re still getting money, so can they send the account to collections?
Why I’m asking: I’m currently saving like a madman to fulfill a lifelong dream, which will happen in October. I have a RBC Visa that is maxed out that I’m currently paying off. For the last two billing cycles I’ve only paid the interest, just to be able to make a payment. Last month and this month they’ve called to harass me for the full minimum payment. Must be hurtin’ for cash. :rolleyes:
I’m thinking of continuing to only pay the interest until I get back from my trip in November, then resume my habit of paying the interest + $100 per month. Oh yes - I’ve had many years of on-time, more-than-the-minimum payments but they still feel the need to call when I’m a few weeks late now.
**Should I disclose this to RBC? Or can I just keep on keepin’ on with paying only the interest until November? **
I know I borrowed this money and need to pay it back. I take full responsibilty for this debt. I just need a bit of a break for the next 4 months.
In my experience the minimum payments are usually set so that they are barely above the interest anyway. E.g. minimum payment is 2.5% of the balance but the interest is 2% of the balance. So it wouldn’t make a huge difference unless (a) your balances are huge, or (b) you are on a promotional low interest rate, but still have to pay a minimum 2.5% of the balance.
But in this situation it is always best to call the card company and explain that you are tight for money for a short time. Just to let them know that you are paying attention and not just going to default. Many card companies will offer “payment holidays” if requested - usually only for a month or two, and with the interest still accruing. It’s worth asking, especially if you are a long-standing customer with a good record of payments.
Yes, they can. I get what you’re saying, but they can send it to collections if you do not uphold your contractual obligation to make the minimum payment as described in the agreement.
Yes, which is why I will repeat - call the card provider. If they know you just want to reduce your payments for a set period, they should be able to come to an arrangement. It is much less hassle for them than it would be to start getting the debt collection process in motion, which is what could happen if you don’t forewarn them.
First, and probably most importantly to you, if you don’t make at least the minimum payment, you are delinquent for the portion that you didn’t pay, and after 30 days, they will report you to the credit bureaus, which will not be good. So I would suggest paying it.
Second, banks do not have complete freedom in setting their minimum payments. Regulators for the government will look at min payment structures, and if they feel that they do not allow the customer to pay off the card in a reasonable period of time, they can require it to be changed. A lot of this changed around the CARD act of 2010. Before that time, a lot of min payments were, as Colophon said, very low. Since then, they have generally gone up. You will still take a long time to pay off your card paying only the min payment, but generally not 50 years anymore.
So if you think the payment is too high, blame the government.
Does your lifelong dream require cash? Couldn’t you use the money your saving to pay down the balance on the card, then use it again for whatever expenses ensue?
You are playing with fire. If you ding your credit rating (and it appears you are on your way to doing so) lots of things become unattainable or considerably more expensive in terms of favorable CC interest rates, loans etc.
CC payment terms are something you really don’t want to screw with unless you are going bust. Doing it to sequester money for a dream vacation is not wise.
By paying less than the Minimum Payment Due, having the account turned over to Collections is the least of your problems! Each month you pay less than the Minimum Due, they will report it just as if you’d paid nothing to the Credit Bureas! And a few late or missed credit card payments will destroy your Credit Score and it will take several years to undo the damage! The credit card company will also charge you a Late Fee for each month for you pay less than the Minimum Due. If you’re at or very near the credit limit, those fees could trigger Over Limit Fees. Going over your credit limit will also do signiciant damage to your credit score!
I was laid off in June 2007 and didn’t find a new job for almost five months. Money was very tight during that time. When I lost my job in June 2007, I had seven credit card accounts (four major, three misc/store cars), had paid off a 60-month car loan almost two years early in Jan 2007 and I was six years into a mortgate and had just leased a new car a few months earlier- NEVER a single late payment on any of those accounts! The only blemish was from three years earlier when I accidentally went over-limit on the Visa I used for work travel. In June 2007, I had Credit Score (Equifax) of 710.
Before going back to work in Nov 2007, two credit card payments had gone 30 days past due (on two different accounts). When I paid those late, I made sure to pay Minimum +$100 for good measure. I checked my Credit Score again in Dec 2007 and it had dropped from 710 to 578!!! Just for two 30-day late payments!
The company that hired me in Nov 2007 folded in May 2008 and I spent 14 months unemployed with the Recession in full swing! I managed to sell my townhouse for the full mortgage payoff, but I had to surrender the 2007 Acura TL that I leased in March 2007. It was a 36-moth lease and I still had 19-months remaining when I turned it back in. It had the same effect as a ‘repo’ except I die a ‘voluntary surrender’. A repo and voluntary surrender have the same impact on your Credit Report/Score and the same legal consequences, but by turning it back in, washed and waxed, let me cling to a little shred of dignity…
After the lease default hit my Equifax, my 578 went as low as 512 in early 2009…and I have been working diligently for the last three years and I just cracked 650 two months ago…it’s hard as hell to fix credit mistakes…
Does your “lifelong dream” need a credit card? How will your life suffer if they cancel it sometime soon?
Also, if you have cash in a bank account with the same bank that issued your credit card, the fine print in your agreement may authorize them to help themselves to your assets.
If you are making enough money to cover the interest and save for this “dream”, then why would you not pay the interest and pay down your card balance, then have the room to max it out when it’s time to dream? Meanwhile, your total interest is lower until then, especially if it’s a loan-shark interest rate like most cards. Put $500 a month on the card instead of in your mattress, that’s $500x2%=$10 times 3 months or $30 less in interest. If you can’t scrounge up $500 easily, maybe saving $30 is a good idea. Do $500 each month for 3 months, by October your interest is $30 less.
You can’t afford your lifelong dream. By the time you fulfill it, your credit will be in the tank. The bank has you by the balls, and you have willingly offered yourself up to your creditors. You may as well have snipped them off and delivered them yourself. At this point, you’ve run yourself into “maxed out” debt. The way to have ideally achieved your lifelong dream would have been to scrimp and sacrifice and save until you had enough cash to pay for it, all while living a cash-only existence and purchasing only that which you could afford (afford meaning, if you don’t have the cash, you cannot afford it. Period).
I seriously don’t get the casual advice you are being given about calling your bank and either lying (I don’t have the money) or telling the incredible truth (I’m sitting on a pile of cash I’m setting aside for my lifelong dream so I’m going to stiff you for now and probably in the future as the interest on my maxed-out lifestyle is going to soon eclipse my ability to pay even the minimum amount due).
Dude. You are already in over your head and one unfortunate life event away from having it all crash down around you. The best advise is to put that dream on hold and do everything in your power to pay the absolute max you can afford each month while JUST keeping a roof over your head and food in your belly until you are debt free.
And then, living only within your means (re: cash only) for the rest of your life.
I seriously, seriously don’t get the notion of using a credit card for anything but a dire, life or death emergency. Interest is all shades of pure, effing, exploitative evil. And you’re gift-wrapping your balls and hand-delivering them to the bank yourself.
Eep. When your card is maxed out and you’re low enough on funds to need to squirrel away money by not paying the minimum I would seriously reconsider if this lifelong dream is something that HAS to be done and if so does it have to be done right now?
A co-worker of mine was complaining yesterday that she was late with her minimum payment two months in a row and it triggered late payments AND an increase in her interest rate. Now instead of paying 15% interest she is paying 29% interest for at least the next 6 months. After six months of on time payments they’ll review her account to see if they can take it back to the rate she had before. They also knocked her credit limit down. Ouch! If you do talk to the credit card company make sure you ask them if there are any credit reporting issues or interest increases or other penalties you’ll incur if you don’t make the minimum. Just because they tell you they won’t put you in collections doesn’t mean they won’t kick your butt with fees.
Looking at what banks are doing with credit these days makes me glad I had my bout with credit cards when I was 19 and got it out of my system.
I agree with this. I have had credit card balances for half my life now, and finally at the age of 36 I will hopefully be in a position this month to clear the last of them. (I still owe a big chunk of change to my father-in-law, who was kind enough to lend me money at a low rate of interest to clear the highest rates.)
Once that is done, all of them are being closed except one, which will be used only for small regular expenditure (and in case of emergencies) and paid in full each month, to maintain credit rating without paying any interest.
I got into credit card trouble about 25 years ago and it’s like trying to climb out of a glass pit when you’re covered with Crisco. Those days are behind me, thank goodness. I now have just one Visa, but I DO use it for EVERYTHING. From the smallest to the largest expenses, anywhere that will take it. More importantly, I pay off the balance every month, usually weeks before it’s due. My credit score is 790, and the credit limit on that card is sky-high. The reason I use it for everything is that I use Quicken, and when I download my charges, I can easily categorize them for tax purposes. Since I’m self-employed, it behooves me to nab every possible expense/deduction. This way I enter virtually no transactions manually. When it’s time for taxes, I print a report that I give to my tax preparer (my ex-MIL ), and voila! I’ve been doing it this way for 13 years. Never been tempted to overcharge again. I learned my lesson, but cash only is not the answer for me.
If you are paying the balance in full each month and not paying interest, then you are living cash only, and in a very smart way.
I don’t mean to imply that credit cards don’t have their useful functions. I use an AMEX for the same credit worthiness reason (which suits us when purchasing a home or vehicles, but we haven’t even done that in nearly 10 years). But I pay no interest, only a small annual fee. The card works for me. I’m not slave to it.
The only items we purchase without paying cash (or the equivalent) are furniture pieces. We go to stores that offer interest-free financing for up to two years, divide monthly payments out by the interest free term, and pay it off at the end of that period. We are careful to pay on time each month and because we live frugally, we have savings and investments that ensure we could pay the balance in full if we needed to. We make credit work for us, and with exception to the low interest on our home loan, do not pay interest on anything. Ever. If I even thought about doing that in order to purchase something I want, it would be an immediate red flag that I cannot afford that thing I want.
Only true if you are looking to purchase a home or buy a car, when they consider things like percentage within a credit limit as well as history of maintaining accounts paid timely. History of accounts that are now paid off generally stay on your credit record for 10-15 years; once that falls off, you lose that history. Shouldn’t be an issue for people who maintain an ongoing history of paying bills timely and even less problematic for those who have a very low debt-to-income ratio. It is not true that closing an old account is going to immediately or drastically impact credit rating. And it could be beneficial in fact for people who had a poor history of timely payments (though they still have to wait that 10-15 years for it to drop off the report).
If there is no annual fee, and a good payment history, it probably doesn’t hurt to keep the account open.
Many department stores will automatically close credit accounts after a period of inactivity anyway.
My only concern about my credit rating is that my husband’s mortgage comes up for renewal next year. Even though he bought the house long before we got together and my name is not yet on the mortgage paperwork, I’m worried that because we are now married my credit rating could affect his mortgage interest rate or something. (I don’t know a damn thing about mortgages - I always rented apartments.)
