Taking a holiday from your bills sounds great. You keep this month’s payment in your checking account and just pick up where you left off next month, right? Not exactly. Here are four things to think about when deciding whether or not to skip your payment.
- Fees. Most financial institutions and credit card companies will charge a fee, typically $25-$35. You might pay more for a loan with a higher balance. Some lenders will add the fee to your balance, increasing the interest you pay in future months.
- Finance Charges. Yes, you will be charged interest for the month you skip. Since most loan agreements require all finance charges to be paid first, the payment following the month you skip will go towards interest and fees first, then to your principal.
- Your Current Balance and Rate. If your loan has a high rate or a high balance, there could be a sizeable jump in the number of months until payoff, especially if the fee is added to the balance. On the other hand, if your balance is low, it might not be worth skipping.
- Your Minimum Payment. Clearly, if your minimum payment is less than or close to the fee, you should go ahead and make the minimum payment.
If it sounds like I am discouraging you from skipping a loan payment, I’m not. We actually offer the option to skip a payment option (find details on how the program works here) on qualified loans.
I do, however, want you to know what to expect and carefully consider your decision. In fact, here are three times you should consider skipping your loan:
- When the alternative is to miss a payment or pay late. You could be charged a late fee that’s higher than the skip payment fee. Depending on your loan agreement, it could also affect your interest rate. In addition, a missed payment could show up on your credit report.
- Instead of a payday or title loan. These loans promise cash when you need it, no credit check needed, no questions asked. But the payment terms and interest rate probably far exceed the cost to skip a loan payment you already have.
- During a crisis. Some months just keep bringing bad news. Car repairs, an emergency call to the plumber, your daughter knocked out a tooth at softball. And here you are with a credit card near the limit and no extra cash. Skipping your payment so you can avoid a bigger financial hit is a reasonable choice.
Once you’ve skipped your loan, don’t just go back to your regular routine. Make a larger payment for the next few months to minimize the total interest you pay over time. This is especially important for credit cards and other loans based on a line of credit.
Finally, make a plan so you avoid this situation in the future. If you find yourself skipping payments every summer because your income drops, or every fall to pay for holiday expenses, set up a savings account like CU Thrive. Even a small amount put aside every payday can help you get out of this cycle.
For details about the Hanscom FCU Skip-a-Pay program and answers to frequently asked questions about the program, visit www.hfcu.org/skip.
For help managing your budget, download our Build-A-Budget eguide. 
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