Mayank’s history of late payments and decisions can affect its financial situation in multiple ways. This will show up in his credit information report and will lead to a bad credit score, which will result in a high cost of borrowing and tighter terms when he has to take out loans. Rebuilding his credit score will take him a long time and he should start immediately since his late payments are not due to a lack of funds but to the way he handles money. As a serious financial consequence of postponing his financial decisions, he may lose his insurance protection. If premiums are not paid or renewed in time to keep the policy in force, insurance companies are not obligated to provide coverage, putting him at risk of incurring large expenses and his dependents without protection.
There are costs and penalties that Mayank will incur for late payment and these can amount to a significant sum. He should see them as funds that could have been invested to contribute to his goals or even spent on things he would like to buy. Penalties can also take the form of lost benefits. For example, he may lose bonus-malus benefits on general insurance policies and reward points accumulated on cards, depending on the product terms. Insurance companies may refuse to provide coverage or may expect a higher premium for providing coverage, while credit card companies may offer a lower credit limit. All of these elements will have an impact on its long-term financial situation.
He needs to replicate his success by automating his investments along with his expenses as well. He should sign up for bill payment services offered by most banks and register all of his service providers to make the payment process easier and therefore less likely to be delayed. Wherever possible, as with insurance premiums, he should choose the annual payment option to reduce the risk of missing a payment. He must keep his contact information up to date with his service providers so that he is informed of the dues and can take action in a timely manner. Taking corrective action immediately will not only protect their current situation, but will also help redeem their past mistakes over time.
Content on this page is courtesy of the Center for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.