What Does It Mean When Debt Is Past Due?

Debt is a concern for all small business owners. While some debt is considered good debt—debt that ultimately helps the borrower net more in savings or income—other debt is deemed “bad debt.” The latter includes debt that can directly and negatively impact a business owner’s credit score, or that costs money or potentially limits their ability to secure financing in the future. Past-due debt, sometimes referred to as “delinquent debt,” falls into this category.

What Does Past Due Debt Mean?

Past-due debt is the money owed on a missed debt payment. For example, let’s say you receive a credit card bill of $1,000 with a minimum monthly payment of $50. If you don’t make that $50 payment on time (usually within a month), it will become past due. This delinquent debt payment will often accrue late fees and additional interest if not paid.

You don’t necessarily need to pay the full $1,000 at once—but you missed the required minimum payment, which caused a debt payment to become past due. 

Past-due debt can come in a variety of forms. Your debt can be due for utility payments, rent, credit cards, loan payments, and invoices. Essentially, any expense with a payment that isn’t made on time becomes past due.

What Is the Difference Between Past Due Debt and Delinquent Debt?

Debt that is past due is also considered delinquent. However, there are differing levels of delinquency. Each level has its own penalties and risks to your financial reputation. Here are a few examples:

• Within 10 days: Many lenders have a grace period of a couple of weeks during which you can pay off the debt. During this time, there aren’t late fees or penalties as long as you pay off your debt. (This grace window varies by the lender—some will charge a fee if you miss the payment date by even a day.) 
• After 10 days: You may receive a late fee for your delayed payment, but the lender won’t take any action against your account. 
• After 30 days: If you skip a full billing cycle, your creditors will likely report this missed payment to the national credit bureaus. This report can impact your credit score and add delinquency to your credit history.   
• After 90 days: If you continue to miss payments, you’ll likely accrue more penalty fees and interest. Your interest rates may increase, and your credit will keep dropping. Eventually, your creditor will send your account to collections and freeze any services you receive. 

Will Paying Past Due Accounts Benefit Your Business?

If you’re contending with multiple sources of debt, then consider starting with your past-due accounts. Paying off your overdue debts first could prevent your account from going into collections and affecting your credit score. 

If possible, make the minimum payments on all of your accounts—even if you can’t pay off the full balance. Hitting these minimum payments proves to creditors that you’re still willing to pay what you owe and aren’t going to fall into delinquency. 

If you are ever in a situation where you’re unable to make the minimum payment, contact your creditor ASAP. Some credit card companies offer hardship programs where you can pause payments for a few months. Your other lenders may be willing to accept partial payments in the short run. 

How Long Do Late Payments Stay on Your Credit Report? 

Payment history is one of the biggest factors of your credit score. Your history lets lenders know how likely you are to miss a payment or become delinquent on the account. Because of its high value, a missed payment will stay on your credit report for 7 years, whether the missed payment is 30- or 90-days late. 

However, a missed payment might not affect your credit score for the full 7 years. If you only miss a few payments, then your credit score might rebound in a couple of years. Multiple factors  contribute to your credit score, and maintaining a good payment history is one of the best ways to keep it strong.  

Set Reminders for Your Minimum Payments

While your lenders will likely remind you about upcoming bills, you can also set payment reminders to ensure that you at least make your minimum payments. These reminders will help you avoid past-due debt, even if you still need time to pay off your full balance. Making these small payments will help to protect your credit and your future financial opportunities.

If you’re too busy to remember to make payments, you can also set up autopay options to draft from your account. Just make sure you have enough money to avoid overdraft fees.