What is Delinquent Debt?
Summary
Delinquent debt is money you owe that isn’t paid on time. Learn when different types of debt become delinquent, what the consequences are and steps to get back on track.
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Missed debt payments can happen for many reasons, including an unexpected expense, such as a medical emergency, or a financial hardship, like losing your job. But if you miss a payment long enough, your debt may be considered delinquent.
Delinquent debt is when you haven’t made a payment by the agreed-upon due date, and it can occur on any type of account, from a loan or credit card to rent payments.1 A late or missed payment is called a delinquent payment.
Having delinquent debt may feel overwhelming — it can be hard to know what to do and how to repay. However, there are steps you can take to address delinquent debt. Let’s take a look at some different types of debt, when they’re considered delinquent, what the consequences are and some tips for getting back on track.
Types of delinquent debt
Any time you owe a lender or service provider money that you haven’t paid as agreed, your debt may be considered delinquent. Each type of debt may have slightly different processes, timelines and consequences for delinquency. Let’s explore some common kinds of debt and what happens when they become delinquent.
Personal loan
A personal loan lets you borrow a set amount of money and repay it with interest in fixed monthly payments over a specific period of time.
Typically, a personal loan is considered delinquent as soon as you miss a scheduled payment. Your account is marked past due, and you may be charged a late fee. Interest charges will also accumulate after the missed payment date, even during the grace period. If you miss a payment for a full billing cycle (usually 30 days), the lender may report the delinquency to the credit bureaus, which can lower your credit score.
The details may vary based on your loan agreement, but after several delinquent payments — often around 90 days — the loan may be declared in default. At that point, the lender may send the account to a debt collector.
If the loan is secured, meaning it’s backed by collateral (something of value you possess, like a car), the lender can claim the collateral to recover the balance once the loan is in default.
Auto loan
An auto loan is an installment loan used to purchase a new or used vehicle. The vehicle itself often serves as collateral for the loan. An auto loan becomes delinquent as soon as a payment is missed. Lenders may have a grace period of around 10 to 15 days, but if you don’t pay by the end of the grace period, you may be charged a late fee. Missed payments can also be reported to the credit bureaus after 30 days.
At 30 days without payment — depending on the contract — the lender may also consider the loan in default. Default can result in repossession of the vehicle. If there’s any remaining balance after the car is sold (known as a deficiency balance), the lender may send the account to a debt collector.2
Mortgage
A mortgage is a long-term loan used to buy or refinance a home, with the property acting as collateral. Your mortgage becomes delinquent when you miss a payment on the due date. Many mortgage lenders offer a grace period — between 30 to 60 days — before charging a late fee.3 After the grace period, most lenders report the delinquency to the credit bureaus. If the debt stays delinquent for around 90 days, the loan typically moves into default, and after 120 days, the lender may begin foreclosure proceedings.4
Credit card debt
A credit card is a form of revolving credit. You can borrow up to a set limit, but you’re expected to make at least a minimum payment each month. Credit card debt builds when you spend more than you can repay every month. Credit card accounts are considered delinquent when you don’t make the minimum payment by the due date shown on your statement.
When your account is delinquent, you may be charged a late fee. If you had a low promotional annual percentage rate (APR), the issuer may revert to the non-promotional rate. (The APR is the yearly cost of borrowing.) Some issuers may also charge a penalty APR, which is higher than the usual rate, if your debt is delinquent.
After 30 days, the issuer may report the delinquency to the credit bureaus. If your account is delinquent for about six months, the lender may consider it in default, close the account and send it to a debt collector.5
Rent
If you rent property through a lease agreement and don’t pay your rent by the agreed-upon date, the debt may be considered delinquent. Some landlords provide a brief grace period, but a late fee may apply once that time passes. Landlords generally don’t report to the credit bureaus, but there are still serious consequences for delinquent rent. If rent remains unpaid for an amount of time specified in your lease, the landlord can begin eviction proceedings. They may also turn the debt over to a debt collector, which shows up on your credit report and may affect your credit score.6,7
How to deal with delinquent debt
If you have delinquent debt, there are a few actions you can take to get your finances back on track. Consider some of the following strategies:
Contact your lender
If you’re dealing with delinquent debt, let your lender know what’s going on and see if they might offer any support. Some lenders might offer hardship programs if you’re struggling to afford your bills or payment plans if you need to break up what you owe into smaller amounts. You might also be able to defer your debt. Deferment is when you temporarily pause payments with a lender’s approval. Depending on your circumstances, refinancing to extend the loan term and get more manageable monthly payments might be an option, too.
Catch up on payments
If you need to catch up on payments, you might consider finding a debt repayment method that works for you. Two popular strategies are debt snowball and debt avalanche. With the debt snowball method, you pay off your smallest debt first, followed by the next smallest debt. Once you’ve paid off the first debt, you can use the money you’re saving to make larger payments on the second debt, and so on. With the debt avalanche method, you pay off the debt with the highest interest rate first. Then you’ll focus on paying the debt with the next highest interest rate, and so forth.
Consider debt consolidation
Debt consolidation is when you combine multiple debts into a new personal loan or credit card, ideally with a lower interest rate, so that you have one fixed monthly payment and one due date to keep track of. Some lenders, including OneMain, also allow you to use a debt consolidation loan to refinance a single loan from another lender for a higher amount in order to borrow more money. Debt consolidation may be a good idea if you’re having trouble managing several loan or credit card payments. If you choose a debt consolidation loan, you’ll also want to keep in mind the term length — a longer loan term can mean you’ll spend more interest over the life of the loan.
Know your rights
If a debt collector reaches out about your debt, it’s important to know your rights under the Fair Debt Collection Practices Act (FDCPA). For instance, according to the FDCPA, a debt collector is not supposed to contact you before 8 AM or after 9 PM.8 If a debt collector is using abuse or harassment — verbal or written threats, obscene language or repeatedly calling your home, for example — you can report them to the Consumer Financial Protection Bureau and the Federal Trade Commission.9
How to prevent future delinquent debt
Once you’ve taken steps toward resolving delinquent debt, you may be wondering what you can do to prevent a similar situation from occurring in the future. Consider the following tips:
Set up autopay: Autopay allows you to set up scheduled automatic payments for your recurring bills each month. To set up autopay, you give companies your checking account information and authorize them to regularly withdraw money from your account to pay bills. However, you’ll want to make sure you have sufficient funds available in your linked account when it’s time for a bill to be processed, or you may overdraft. To get ahead of an overdraft, set up monthly reminders on your calendar a few days before a payment is due so that you can make sure there is enough money in your bank account to cover the cost.
Reschedule your payment due date: Some lenders may allow you to change the date of the month when your payment is due. For example, choosing one day per month when you pay all your bills could make it easier to remember payments instead of having a few different due dates in your calendar. It may also be helpful to schedule your payment due dates around when you get paid to ensure there’s money in your account.
Build an emergency fund: Creating an emergency fund is another way to ensure you have some extra money available in case you can’t afford your bills. It’s generally recommended to keep your emergency fund in a separate savings account dedicated to covering unexpected expenses. Experts recommend having three to six months of living expenses — including minimum debt payments — in an emergency fund.
Budget realistically: Making a realistic monthly budget could help you better manage your money and stay on top of your payments. Sometimes, it comes down to finding a budgeting method that works for you. One common approach is the 50-30-20 rule, where 50% of your income goes toward your needs (like groceries and mortgage payments), 30% goes toward wants (like dining out and entertainment), and 20% goes toward your savings and paying down debt.
Borrow responsibly: If you need to borrow money, make sure you calculate exactly how much you need and make a plan to pay it back. Carefully consider what amount will work with your budget, including any interest and fees.
Get back on track, one payment at a time
Having delinquent debt can be stressful, but it doesn’t have to define your finances. There are steps you can take to improve the situation, including communicating with your lender, creating a manageable plan to repay the money, and getting your finances back on track.
With some proactivity and planning, you can set yourself up for a stable and secure financial future.
Sources
1 https://www.experian.com/blogs/ask-experian/when-does-debt-become-delinquent
2 https://www.experian.com/blogs/ask-experian/how-bad-is-it-to-default-on-a-car-loan
3 https://www.investopedia.com/terms/d/delinquent_mortgage.asp
4 https://www.bankrate.com/mortgages/how-many-mortgage-payments-can-i-miss/#how-many
5 https://www.experian.com/blogs/ask-experian/what-is-a-delinquency-on-a-credit-report
6 https://www.zillow.com/learn/when-is-rent-considered-late/
7 https://www.experian.com/blogs/ask-experian/does-renting-an-apartment-build-credit
8 https://www.ftc.gov/legal-library/browse/rules/fair-debt-collection-practices-act-text
9 https://www.consumerfinance.gov/ask-cfpb/what-is-an-unfair-deceptive-or-abusive-practice-by-a-debt-collector-en-1401
This article is for general education and informational purposes, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or fitness for any purpose and is not intended to be and does not constitute financial, legal, tax, or any other advice. Parties (other than sponsored partners of OneMain Financial (OMF)) referenced in the article are not sponsors of, do not endorse, and are not otherwise affiliated with OMF.
