Individuals experienced in budgeting may find they can cover growing monthly expenses by prioritizing their bills. A survey conducted by the Federal Reserve revealed that 45% of respondents deferred a credit card payment for one month to help cover a monthly budget. This may not, however, solve long-term financial issues.
As reported by CNBC, nearly 25% of Americans obtained financial relief through a postponed payment plan in 2020. Plans included deferring credit card or mortgage payments for a short time. This helped struggling households catch up on utilities and medical expenses or make needed household purchases. Although effective as a short-term fix, many individuals still consider bankruptcy when financial issues continue or worsen.
Credit card accounts may fall into delinquent status quickly
A job loss or an unexpected reduction of income can derail the most carefully crafted budget. As noted by U.S. News & World Report, even after an agreed-upon postponement, some individuals can fall into a “delinquent” status within 30 days. With accounts in delinquency, debtors begin receiving phone calls and harassing collection letters.
Missed payments can result in lowered credit scores as creditors begin reporting delinquent accounts to the major bureaus. They can also generate extensive late fees that add higher interest amounts to growing account balances.
Accounts placed in default status may bring legal actions
When delinquent accounts remain unpaid past timeframes demanded by debt collectors, they typically enter into the “default” category. As noted by Bankrate.com, default occurs when debtors miss six months of payments.
Creditors generally give up on unpaid accounts by charging them off or referring them to an attorney for more aggressive collection efforts. When facing harsh legal actions, many debtors find that discharging overwhelming past-due accounts through bankruptcy may help resolve critical financial issues.