What Happens If I Pay Less than the Minimum Due?

A reader sent in this question:

Is paying less than $50 a month to a creditor acceptable if that is all you can afford to pay, no matter the amount owed? Can they reject payment even though you are trying? 

I’m not sure where it started, but there’s a fairly common misconception out there that if you send a creditor a payment below the minimum and they take that payment, they have “accepted” the payment, and now everything is square. A lot of people (seriously a lot – so don’t feel bad if you’ve been operating under this misunderstanding) think that every time a creditor accepts a payment, they’re making a legal agreement, one that says, “We cashed this check, so your required payment has been satisfied.”

Creditors will almost always take whatever amount you send them – you owe them money, they want that money, so they’re not going to say no. But when you sign an agreement for a loan or a credit card, you agree to make a certain minimum payment each month. If you don’t make that minimum payment, unfortunately, you’ve breached the contract.

Consequences of sending a short payment

In other words, payments below the minimum will almost always be accepted, but your account will still be delinquent. Your account will fall behind however much your payment was short (if your minimum was $50 and you paid $30, your account would be $20 past due).

From a credit reporting perspective, the account would then be 30 days delinquent, and it would remain delinquent until you’ve made the payments required to get caught up. If you continue to send payments below what is required, your account will become increasingly delinquent, and may eventually be charged off and sent to collections.

If you can't meet your minimum payment

If you can’t meet your minimum payment, your first step should be to contact your creditor. Let them know what the situation is and see if they can help. Many lenders offer short-term hardship programs that could potentially reduce your minimum payment for a fixed number of months. You should keep in mind, however, that these programs are only designed to keep your accounts from going delinquent. You won’t make much progress paying down your debt while you’re on a hardship program.

Continued failure to meet your minimum payments may be indicative of budgeting issues, bad spending habits, or simply carrying too much debt to properly manage. A certified credit counselor can help you better understand why you’re struggling and offer a variety of potential solutions to help you stabilize your finances.

If your creditor can’t help you, or if you have multiple accounts where you’re struggling to meet the minimum payment, you may benefit from a nonprofit debt management plan, which can help you consolidate your payments into one, budget-friendly amount, while saving on reduced interest costs.

Whatever you do, don’t just keep making short payments. Unless you’ve come to a new agreement with your creditor, consistently making less-than-minimum payments will eventually end with you defaulting on the account, which will more than likely put the account into collections. The sooner you address the problem, the better.