What to Do When You’re Delinquent on Debt
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Most creditors consider an account delinquent as soon as you miss a payment. You’ll likely get a grace period to pay up, but you’ll need to act quickly to sidestep fees, penalties, serious damage to your credit score or even potential legal action.
See the timeline below for what to expect during every stage of delinquency, as well as ways to potentially steer your way out.
What does it mean to be delinquent on debt?
You are delinquent on debt the day after a missed payment, but that doesn’t mean a creditor is ready to take drastic action or that your debt is about to default. Most creditors allow for a grace period, a brief window of time to make up missed payments and get your loan back into good standing before a fee or another penalty kicks in.
Grace periods vary according to the type of debt you have, so it’s important to review details in the agreement you signed with your lender. It’s common to get a 30-day grace period, but for a mortgage, you’ll likely get 15 days before you’re charged a late fee, which might be 5% of your monthly payment amount. For a credit card, late fees may kick in soon after a payment is due, though some lenders may extend the grace period up to the date the next payment is due. After that, expect a $35 to $40 late fee and a new penalty APR that could go as high as 30%.
If a delinquent bill stays unpaid, it can trigger a major drop in your credit score — it could potentially fall by as many as 80 points for a single missed payment on a personal loan, 100 points on a student loan, or 125 points for a late credit card payment. Delinquency can also make it harder to secure approval for new loans or credit cards in the future, and if you’re approved at all, you’ll probably receive a higher interest rate.
A delinquent bill that remains unpaid risks going into default. The timing for this will depend on the type of loan and the lender, but as you’ll see below, the consequences can be especially sobering.
How delinquency compares to default
Default is the end result when a financial account has been delinquent for a certain period of time, and it usually means a borrower has missed a few payments in a row over the course of a few weeks or months. This time period is dependent on the type of financial account — for example, you’ll likely see your mortgage default after 90 days of missed payments, 180 days for credit cards and 270 days for a federal student loan (for a private student loan, it could be as soon as 90 days ).
For debt that’s backed with an asset — like a mortgage or car loan — a default means a creditor might start taking steps to seize the collateral to help repay the debt. For unsecured debt like a credit card balance, a creditor typically passes along the debt to a debt collection agency. When a federal student loan defaults, the entire loan balance will be due immediately, with interest.
If your debt defaults, expect an especially steep drop in your credit score.
Timeline of debt delinquency
Delinquency can get more serious with time, depending on how many days have passed since your last payment. During each stage of delinquency, lenders often respond differently and with different repercussions, in terms of items of what they charge in late fees and when they might report your account to a major credit bureau, among other factors.
Here’s a timeline of what you can generally expect:
1 to 30 days late
Depending on the type of debt you have, your creditor may have already checked in, but most likely you’ve been given a grace period. This is a key time to try to resolve your late status, as a creditor may be more willing to work with you now to make sure they get paid.
You could be offered a chance to temporarily stop or defer payments, make partial payments or modify a loan agreement. If you had a good relationship with your creditor in the past, it’s likely you could be offered more flexible pay-off terms.
30 to 90 days
Once a payment is more than a month late, your credit score might see its first drop, with higher scores showing the biggest drops (possibly 60 to 80 points, according to FICO data). Expect another drop for every 30 days of delinquency.
After two missed payments, it’s likely your interest rate will go up. Getting your lender to waive additional late fees and penalties will be tough now.
90 to 120 days late
At the 90-day mark, your creditor will rev up collection efforts, and may also flag your account as being in default. A credit card company might decide to close your card and sell it to a collection agency. Even if you previously had excellent credit, you might see your score drop further, by as many as 50 points.
You’ll be hearing frequently from your creditor now, and depending on the type of loan, you might be asked to pay the amount in full. Your creditor may alert you to what might happen in case you default, like a potential foreclosure on your home or repossession of your car.
If you haven’t already contacted your lender and tried to negotiate new payment terms, this is probably your last chance to do so.
120 to 180 days late
By now, a creditor will be far less willing to work with you. If you have a delinquent mortgage, your lender might start foreclosure proceedings, although this will vary according to your state of residence. For other types of debt — if payment is 120 days late — a creditor will probably pass it along to a third-party collection agency.
Once your debt is in collections, a note will be added to your credit report, and your credit score will likely drop even more.
Debt collectors are required to send you a debt validation letter within five days of contacting you, spelling out what you owe and to whom. If you don’t dispute the debt, an agency can continue to contact you, and you may receive an offer to settle your account for a portion of what you owe.
More than 180 days late
By now, any unsecured debt that’s delinquent will almost certainly be in the hands of a collection agency. Debt collectors might pursue you aggressively, and, in certain instances, might threaten you with a lawsuit or wage garnishment.
Even now, you may still be able to settle your debt — collection agencies prefer to avoid having to take costly legal action. If you can’t afford to pay the settlement amount, consider reaching out to a nonprofit credit counselor. They can help you set up a debt management plan and potentially negotiate better terms with your creditors, like lower interest rates, fees and monthly payments.
How to get debt out of delinquency
- Contact your lender. It’s always best to reach out a creditor before you miss a payment. Otherwise, reach out as soon as possible to work out an alternative payment plan and get your account back in good standing.
- Consult a certified credit counselor. These financial professionals are trained to help borrowers overcome serious debt issues. A counselor can set up a realistic budget for you, enroll you in a debt management plan and perhaps also stop unwanted calls from collection agencies.
- Dip into savings. Raiding a retirement account or emergency fund isn’t ideal, but it might free enough cash to help you pay off what you owe and keep your credit score from sinking further. For example, you can withdraw contributions made to a Roth IRA without paying taxes or penalties.
- Use a debt consolidation loan. If you’re struggling to repay multiple debts and have good credit and a steady income, a debt consolidation loan might let you combine your debts into a more manageable, fixed monthly bill with a lower interest rate. However, you should watch out for potential origination fees that could be as much as 8% of your loan amount.
How to remove delinquent accounts from your credit report
Both late payment notices and collection notices stay on your credit report for up to seven years after the original delinquency date, although the impact they have on your score and future lending decisions will lessen with every passing year.
Removing delinquency information isn’t easy. You might ask your creditor for a goodwill adjustment, especially if your account was previously in good standing and the missed payment was the result of a crisis, like a medical emergency or natural disaster.
Another strategy might be to make the deletion part of the repayment terms you negotiate with either your original creditor or a collection agency, as part of a “pay to delete” agreement. Still, newer ways of reporting credit information have made it less likely a paid-off debt will be calculated as part of your credit score. In the end, your credit score might get a bigger boost if you pay down the debt you owe and budget smartly for future spending needs.