Delaying a payment on a loan or credit card is something you should stay away from, lest it lead you down the path to delinquency slowly over a period of time. An account is said to be past due when you miss your payment. The more number of days past due your account becomes, it becomes delinquent and the bank or financial institution you had borrowed from will want to recover dues.

When your account (especially at the initial stages, for example) is only a little past due, the lender will get in touch via emails or phone calls with payment reminders, and not take more stringent action. However, as you slip deeper into delinquency, not only does the frequency of follow-up increase, but the intensity is also greater. There are chances that you will be contacted by a collections agency on behalf of the lender. This all works against your CIBIL score, when your account is 90 or more days past due. Delinquency is categorised into levels – it can be reported as 30, 60, 90 and finally 120 days past due. Each such hit makes your credit score dip significantly.

Delinquency Can Signify Something More Grave – that the borrower is not financially solvent and being unable to make ends meet, is unable to make good on debt availed of by them. Of course, not always is a default on account of financial stress, there are instances wherein a customer willingly defaults on payments. Either way, however, your CIBIL score takes a hit.

I Need Help! What Action Can I Take?

Before you hit the panic button, remember that there are steps you can take to extricate yourself out of this unfortunate situation. But before all these steps, it is advised to do a CIBIL score check to know what situation your credit health is in:

Pay Off The Entire Outstanding Balance – Probably the quickest solution would be to pay off the entire past due by way of a lump sum payment. Let’s say you come into some extra funds by way of a bonus at work, or because of an increment – utilise this money then to pay off your dues. Remember the more you delay payment, the amount only adds up – not only is a high rate of interest factored in, but also other fees and finance charges associated with a late payment.

Get In Touch With Your Lender – While this may seem awkward, it is possibly a good way to convey to a lender that you are willing to pay off your loan or card outstanding; it’s just that you require some help to do so. If you explain your situation, it is likely that the lender is willing to accommodate you in terms of tweaking the payment terms slightly – say for example paying the amount due not at one go, but in installments over a period of two to three months.

If the lender is unwilling or unable to make changes to your loan repayment schedule formally, do keep this up at your end anyway – at least over time you would have ‘caught up’ with your payments.

Account Consolidation – Even if after contacting your lender a mutually beneficial solution cannot be worked out, consider availing of a loan (for example, a top-up loan against an existing home loan) that covers all your debt. Using this money, pay off all the smaller debts you have; this way you will now have only one larger loan to service. While you may pay a slightly higher rate of interest, it is well worth it in order to be able to put your house in order.

Banks and credit card companies both offer the option of a balance transfer – evaluate this option and understand whether it could be a possible solution for you. With a balance transfer, you would get money towards outstanding on one credit card, from another. In a similar manner as loan consolidation, you will be able to pay off your entire outstanding over time.

Account Settlement – If in spite of everything you are unable to pay off your loans, speak to your lender about settling the account. With this option, you would need to make a lump sum payment towards closing the account as stipulated by the lender. Once done, your account will reflect as ‘settled’ on your credit report. While not ideal, it is definitely a better deal as compared to a delinquent account.

Credit Counselling – When you see yourself being drawn into a perennial debt trap, don’t wait for things to get even more out of hand – consider meeting with a trained counsellor from a credit health management company to work on your debt situation. They would help you with considering the best options by which to pay off your existing debt, as well as then start working on ways to improve credit score. India’s premier credit health company is Credit Sudhaar that offers counselling to those individuals who want to work on their credit health.

In Conclusion

Before you wind up on a loan defaulter list, it is prudent to assess your financial situation and work out a credit solution that helps you rebuild your credit health eventually.

written by Arun Ramamurthy, author of “Unlock the Power of Your Credit Score” : India’s first book on credit scores