Many Michigan consumers have likely experienced that sinking feeling when month-end approaches, and they realize that there is just not enough money to pay all due debts. Some may have to decide what payment to miss — utility bills or credit cards. Individuals may not be sure what the consequences are of missing a payment, however. If this is a rare occurrence, it may be better to ensure somehow that credit card debt payments are kept up to date.

When a payment on a utility bill such as electricity is missed, the provider may not immediately report the matter to the credit bureau. If the consumer settles the late payment before the debt is handed over for collection, it may not have any negative effect on one’s credit rating. However, if the issue is not resolved timely and the account is handed over to collections, the information will remain on the consumer’s record for seven years.

On the other hand, missing a credit card payment may result in higher interest rates, and late fees may be charged. Missing payments on a mortgage or car loan can result in foreclosure or repossession of a car. Once recorded as a late payer, creditors see the individual as a risk and future credit can be hard to come by. Payment history plays an important part in a consumer’s FICO rating, and consumers may want to avoid negatively affecting their FICO scores.

It may be a good idea for Michigan consumers to be proactive and contact the creditor as soon as they foresee a problem. Discussing the imminent payment failure may prompt the company to offer alternative payment arrangements. Following such an incident, every attempt should be made to keep payments current. However, consumers who are overwhelmed by credit card or other debt may want to consider the protection of personal bankruptcy. Under Chapter 7 bankruptcy, unsecured debts — including credit card debt — may be discharged, while Chapter 13 bankruptcy involves a plan to pay one’s creditors over time as a means of resolving one’s debts.

Source: Fox Business, “So You’ve Missed a Payment: Now What?“, Georgie Miller, May 13, 2014

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