I can’t pay my credit card bill: What can I do?

A recent survey by market research company J.D. Power found that most Australians are feeling financially stressed at the moment. Of the 1,415 respondents, 72% said that coronavirus had negatively impacted their personal finances and 77% said they were feeling some level of financial stress. For those with a credit card, nearly one in five respondents (19%) said they could not make their minimum monthly credit card payment.

If you’re in this position, there are steps you can take to help get your credit card debt under control. Canstar spoke with Sarah Brown-Shaw, a financial counsellor from the National Debt Helpline, about what you can do.

1. Contact your credit card provider

“The first thing is to not hesitate and to contact your bank straight away if you think you are going to have difficulties making payments,” Ms Brown-Shaw said.

“People are often worried about talking to their bank or they are not sure how it is going to be received. Banks are having these conversations every day and even more so now with COVID-19. It’s become their new normal.”

Ms Brown-Shaw recommended you call the hardship team of your bank if you can. Once you’ve made contact, your bank will usually be able to help you make a repayment arrangement based on what you can afford.

Ms Brown-Shaw said it’s a good idea to be prepared before you contact your bank, with a clear picture of your income, your essential expenses and how much you have to put towards payments on credit cards and other debts like loans and mortgages.

“Look at what is manageable. If nothing is manageable then that’s the conversation that you have. There’s no point being pressured into agreeing to a payment that you know you cannot make,” she said.

Image source: Shutterstock (fizkes)

What hardship options are banks offering to credit card customers

A number of banks, including the ‘big four’ are offering financial relief for credit card customers who have been impacted by coronavirus.

For example, Westpac is giving personal customers who have lost their job or suffered a loss of income due to coronavirus a three-month repayment and interest pause. If you are approved for COVID-19 support, Westpac says you’ll be refunded any missed payment fees charged between when you applied and the package was approved.

NAB has automatically reduced the minimum repayments for all credit card customers, regardless of their circumstances, and is not charging late payment fees on all personal and business credit cards for at least three months, from 3 April 2020. The bank does note, however, that for those who only make the minimum repayment, interest will be calculated on the outstanding balance. “It’s always best to pay as much as you can to reduce this balance,” NAB says. It has also reduced the standard purchase interest rate on its personal NAB Low Rate Classic Cards indefinitely to 12.99% p.a from 27 April 2020.

CommBank has refunded late fees and interest for customers who were unable to meet their minimum credit card repayments in March.

ANZ has a Financial Hardship including COVID-19 support form on its website, where you can request a call back if you have not already spoken to the bank by phone.

Ms Brown-Shaw said there are “no hard and fast rules” as to what hardship options are available to you, and arrangements can be made on a case-by-case basis.

“Hardship is a right that you have under Consumer Credit Protection codes and you had those protections before COVID-19,” Ms Brown-Shaw said.

“You’ve got the right to contact your bank and make arrangements to vary the terms of your repayments and it’s up to you what you want to negotiate.”

Ms Brown-Shaw said she recommends people ask their bank to freeze their payments and/or the interest, fees and charges. While banks can freeze interest on credit cards, Ms Brown-Shaw said they are not obligated to do so.

“Under the hardship provisions they do have to consider your request and look at assisting you when you’ve had a reduction in income, but there’s nothing to say they have to freeze the interest.”

2. Make a plan to reduce your debt

If you have credit card debt, it’s important to make a plan to reduce this. For example, the National Debt Helpline says you can:

• Avoid using your credit card/s for more purchases, except in the case of emergencies
• Pay the debt with the highest interest rate or the smallest debt first
• Close each credit card account when you pay it off
• Reduce your credit card limit

You may also want to consider a credit card balance transfer. This is when you move the amount you owe on an existing credit to another credit card that has either a 0% or a low interest rate for a limited time. Be aware that credit cards with a balance transfer offer typically revert to a high interest rate at the end of the promotional period, which means you could end up back at square one if you don’t pay off your balance in that time. Bear in mind, too, that any new purchases or cash advances made using the new card will generally incur interest from the start. The new card provider may also charge a fee for transferring your balance, in addition to any annual card fee that applies.

If you have multiple sources of debt, another option is to take out a debt consolidation loan to pay off your existing debts. However, it’s important to weigh up the potential dangers of doing this. For example, you will need to make sure that the new loan is cheaper than your current loans and that you can keep up with the repayments.

3. Get help if you need it

If you are feeling overwhelmed by credit card debt, contact a financial counsellor as soon as possible.

You can get free financial counselling through some community organisations, community legal centres and government agencies. You can also speak to a financial counsellor for free by calling the National Debt Helpline on 1800 007 007.

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What happens if you don’t pay your credit card bill?

If you don’t pay your credit card bill and you don’t have any hardship arrangements in place, your lender will ordinarily charge you a late payment fee and you may pay interest on this.

If you don’t pay your closing balance in full, you also won’t get any interest-free period on your credit card. This means you’ll pay interest on anything you buy with the card.

Your bank can also issue you with a default notice and eventually take legal action against you. This can have a negative impact on your credit score.

If you have made a repayment arrangement with your bank, a default notice cannot be listed against you while you are keeping with the arrangement. Additionally, the Australian Banking Association has announced that if you defer your credit card payments as a result of coronavirus, this will not impact your credit score.