The average American household carries $6,348 in credit card debt. In March of 2018 the nationwide credit card debt tally exceeded $1 trillion for the first time in history. By the end of 2018 analysts expect this figure to skyrocket to $4 trillion.
If you’re struggling with credit card debt, it’s safe to say you’re not alone. Missing a payment here and there is very common. Missing multiple payments is even more common, and a sign deep financial trouble could be on the horizon.
And while missing a payment here and there may not seem like a big deal, the truth is being just 60 days late can have severe financial implications.
Interest Rates Skyrocket
A late payment can trigger what is called the “penalty APR.” This is a sharp uptick in your credit card’s interest rate. It can go as high as 29.99%.
This adds up.
Let’s say your original APR was 18%. At that point you’re accumulating $18 for every $100 you spend. When the penalty APR hits you’ll be accumulating $29.99 for every $100 you spend. It may not seem like a big difference, but most people carry balances in the thousands. A $1000 balance means you’re paying $119.90 more than you would have been paying. If you carry a $3000 balance you would end up paying $359.70 more than you would have paid otherwise.
These interest rates can swiftly take you over your limit, rendering the card useless while triggering even more fees. All this means…
Your Debt Starts Soaring
Do this on one credit card and you’re creating expensive problems. Do this on just three credit cards and you’re creating a financial black hole. You may never be able to pay enough to drive down the principal or to beat the interest.
Making the minimum payments? This balance is never going away. It may even continue to steadily creep upward.
Your Credit Score Takes a Nosedive
You’ll get dinged on a number of different factors:
- Your credit usage, which will soon show a swiftly closing gap between the amount of your credit line and the amount you have spent.
- Your debt-to-income ratio will be far less favorable.
- The late payments get reported as well, and every late payment drives your credit score down a little more.
A lower credit score means you’ll pay more for car insurance, have higher interest rates on any other loans you take out, and will have trouble refinancing any major debt, like your house or car loan, in the future.
Why are you missing your credit card payments?
When you start missing credit card payments it’s a good idea to consider why this is happening.
35% of Americans just forget. They can solve their problems with a little more organization.
But if you’re one of the 65% of Americans who has missed a credit card payment because you can’t afford it, because you’re juggling basic expenses or family emergencies, it’s time to consider rearranging your financial life. You may need to downsize. You may also need to declare bankruptcy because you’re in over your head.
If you think you may be in this position, don’t wait. The longer you wait, the worse the situation gets. Contact Sadek and Cooper for your free consultation. We’re ready to help.