At this time of year, there’s a pretty good chance you’re carrying debts. Hargreaves Lansdown research shows that the average person who borrows to pay for Christmas will still have debt repayments due in February.
But with our finances stretched so thin, there will be some people for whom those payments are a step too far. In fact, 2.4 million people missed a payment of one sort or another in January this year, according to Which?.
So it’s worth understanding what happens if you do, and how you can protect yourself.
Missed credit card
If you miss the minimum payment, you’ll face a fee of around £10-£15, which isn’t too onerous. However, you may also lose any special deal you have – like 0% on purchases – and it will affect your credit record, which could make it more difficult or expensive to borrow in future. Both of these things could end up having far more impact on your overall finances than the initial fee.
It’s worth being aware that card companies more worried about missed payments than they are about late ones, so try to at least make the minimum payment as soon as you can. If you can make it within a week or two, the only consequence may be the late fee.
Missed Buy Now Pay Later payment
This feels like an easy and cheap way to borrow, but one in three people have missed payments, and there are consequences. You will be charged a late fee, and the BNPL company may inform the credit reference agencies, which can have an impact on your credit score. They may also pass the debt to a debt collection agency, which is not only horribly stressful, but it will also take a toll on your ability to borrow in future.
Missed bill
The impact will depend on the bill you miss, but typically you will face a late payment fee, you’ll have to pay more until the missed bill is covered, and it can have an impact on your credit rating. If you miss more than a couple of payments, the implications are usually harsher, because you will usually have a default notice added to your file, your account may be closed, and the debt may be passed to a debt collection agency – which will charge additional fees. If you do nothing at this stage, the company may get a county court judgment against you – which has an even bigger impact on your ability to borrow in future.
It means it’s vital to get in touch with the company as soon as possible if you’re struggling to pay, and agree a payment schedule you can afford. If you can’t face doing this yourself, speak to a debt charity like StepChange, who can have these conversations for you.
Missed mortgage
There are likely to be late fees and charges, but the consequences can be far more serious, because the loan is secured against your property, so in the worst-case scenario you can lose your home.
Fortunately, there’s a long way between struggling to pay the mortgage and having the property repossessed, so you can help protect your home. It’s much better if you can contact your lender before you miss any payments, explain the situation, and try to come to an agreement. They may, for example, agree to a break in payments for a period, or look at making more fundamental changes to the mortgage to make it more affordable. This will usually mean your mortgage costs more in total, and it can have an impact on your credit rating, but it’s better than missing a payment.
If you miss the payment entirely, this is marked on your credit report, and it has by far the most impact on your ability to borrow in future. Once you miss three months, your lender will take steps towards repossession. All hope is not lost at this stage, but the sooner you tackle arrears, and talk to your lender, the easier it will be to get back on track.
