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Credit card debt can pile up quickly when a person can’t make their payments on time. If you find yourself in that situation, you may wonder if it’s possible to delay credit card payments. In some cases, you may be able to do so. Read on to learn your options.

Credit Card Relief Options

Some credit card companies may provide financial relief programs to their customers who are facing financial hardships and having difficulty paying their bills on time. Below, you’ll learn about some of your options.

Although programs may vary by company, here are some of the relief programs that credit card companies may offer.

💡 Quick Tip: A low-interest personal loan can consolidate your debts, lower your monthly payments, and help you get out of debt sooner.

Decreasing or Deferring Payments

Many credit card companies allow cardholders to reduce or delay credit card payments for a specific amount of time by offering emergency forbearance. Once the forbearance period ends, cardholders will need to make up any skipped or postponed payments.

While the credit card company may not require cardholders to make up payments right away, they will need to begin to make at least the minimum monthly payment. Depending on the new credit card balance, the minimum payment required may have changed.

One other possibility: Many credit card issuers may agree to shifting your due date slightly to, say, better sync with when you get paid. This can be another option to inquire about.

Refunding or Waiving Late Payment Fees

Usually, when a cardholder misses a credit card payment, they are charged a late fee. Some card companies may refund or waive late fees if the customer requests so due to financial hardship.

Lowering the Interest Rate

Some credit card companies may reduce the credit card interest rate on an account if a customer is facing financial hardship. However, this rate may increase after the specified term ends.

Establishing Payment Plans

Some credit card companies help cardholders repay their credit card balance by offering payment plan options. Cardholders may be able to secure a better repayment plan that works for their current financial situation.

Keep in mind that all of these options may vary by creditor.

Consequences of Missing a Credit Card Payment

If you miss a credit card payment vs. entering into a forbearance program with your card issuer, here is what you might expect.

Increase to the Credit Card Balance

Making a late payment may increase a credit card holder’s balance in several ways. First, credit card companies can charge a late fee that can be in the range of $30 or $32, even for the first occurrence. If a cardholder misses a payment after that, the late fee could increase to $41. It’s important to note that this fee may not exceed the minimum balance due.

Another way the credit card company may increase the balance is to increase the account’s interest rate. For example, if the cardholder hasn’t made a payment for 60 days, the credit card company may increase the APR, or annual percentage rate, to a penalty APR.

Increasing the interest rate can also increase the revolving balance on the credit card. However, not all creditors may charge penalty interest.

Credit Scores May Be Impacted

Since payment history and account standing are some of the factors used to determine a cardholder’s credit score, making late payments may negatively impact it. But the amount of time a cardholder’s credit is affected can vary depending on the situation.

In general, creditors send the payment information to credit bureaus. They use codes to identify the standing of the accounts. Typically, once a payment is 30 days late, it is considered a delinquent payment to the credit bureaus.

While missing a payment may not impact a score immediately, it may appear on a cardholder’s score and stay there for several years if it happens regularly. Of course, this depends on the situation and the other factors credit bureaus use to figure the credit score.

The Balance Could Be Charged Off

Another consequence of making a late payment is that the creditor may not allow the cardholder to use it for other purchases until the card is in good standing.

Additionally, if the payment is 180 days late, the creditor may close the account and charge off the balance. If a creditor charges off the balance, it means that the creditor permanently closes the account and writes it off as a loss. However, the cardholder will still owe the outstanding balance remaining on the account.

In some cases, creditors will attempt to recover this debt by using their collections department. In other cases, they may sell the debt to a third-party collection agency that will try to get payments from the cardholder.

Creditors have some flexibility when it comes to working with their customers. For customers who have had financial setbacks such as losing a job, creditors may help them get back on track under FDIC regulations. Usually, this type of flexibility is available for consumers who show a willingness and ability to repay their debt.

Alternative Options

For consumers who find themselves struggling to make their credit card payments and don’t have creditor relief programs available, there are a few other options to consider that may reduce the financial burden of making credit card payments on time.

Balance Transfer Credit Cards

A balance transfer credit card is a credit card that offers a lower interest rate or even a 0% introductory interest rate. This could allow a consumer to transfer a high-interest credit card debt to a card with lower interest — and potentially pay off the debt faster. Usually, balance transfer credit cards have introductory periods that last anywhere between six and 21 months.

Using this method can potentially be a money-saver if the consumer no longer uses the high-interest rate credit card and continues to pay down the transferred debt at the lower interest rate.

In general, consumers need a solid credit history to qualify for a balance transfer credit card. If approved, consumers can use the new credit card to pay down high-interest debt. Therefore, this can be a solution for credit card debt repayment, as long as the cardholder can pay off the debt before the introductory period ends.

However, if the balance isn’t repaid before the introductory period ends, the interest rate typically jumps up. At this point, the balance will begin to accrue interest charges, and the balance will grow.

Home Equity Loans

With fixed-rate home equity loans, some homeowners may qualify for a lower interest rate using their home as collateral rather than using an unsecured loan (a loan that’s not backed by collateral). As with home equity lines of credit, the terms and interest rate a borrower might qualify for is based on a variety of financial factors.

It’s important to note that borrowing against a home doesn’t come without risks, such as leaving the homeowners vulnerable to foreclosure if they don’t pay back the loan.

Credit Card Consolidation

For borrowers who may not want to use their home as collateral but are struggling to pay down debt, debt consolidation with a personal loan may be a better fit for their situation. Essentially, borrowers may be able to use a personal loan with better terms and a lower interest rate to pay off credit card debt.

Using a personal loan to consolidate credit card debt can make monthly payments more manageable and potentially lower payments. Although a credit card debt consolidation loan won’t magically make debt disappear, paying off the balance might make a difference in a person’s overall financial outlook.

However, note that some lenders may charge origination fees, which can add to the total balance you’ll have to repay. You may also have to pay other charges, such as late fees or prepayment penalties, so make sure you understand any fees or penalties before signing the loan agreement.

Recommended: A Guide to Unsecured Personal Loans

The Takeaway

Staying on top of credit card payments can be difficult during times of financial hardship. Fortunately, you might have options when it comes to delaying credit card payments, including forbearance programs with your card issuer. Or, you could explore alternative options for getting out of debt for good. A credit card consolidation loan, which is a kind of personal loan, might be worth exploring.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.

FAQ

Can I delay my credit card payments?

If you are having difficulty making credit card payments on time, it’s wise to contact your credit card issuer as soon as possible to see if they can work with you and possibly allow you to delay a payment. They might be able to waive late fees and change your payment due date going forward to help ease the financial stress.

Does delaying credit card payments affect credit scores?

Delaying credit card payments (or skipping them) can negatively impact your credit score and lead to additional fees and potentially a higher interest rate. Your payment history is the single biggest contributing factor to your credit score, and late or skipped payments can bring your score down.

Can you ask credit card companies to defer payments?

You can ask your credit card if they can defer payments for a period of time or otherwise work with you if it’s challenging to pay what you owe. They are not, however, obligated to agree to do so. You might have to find other ways to manage your debt.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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Income is money earned, plain and simple, right? While that statement is true, it doesn’t tell the full story. If you look more closely, you’ll learn that there are two kinds of income — active income and passive income.

Active income is money you make by actively participating in work, and generally comes in the form of salary, wages, commissions, and tips. Passive income, on the other hand, is money that you earn without active participation. Examples might be money generated by investments, a rental property you own, or a YouTube account you started but haven’t updated.

While passive income may sound like the better deal, both types of income are important. Read on for a closer look at the differences between active and passive income, including potential earnings, tax implications, and how they can impact your lifestyle.

What Is Active Income?

Active income is the income you actively work for, such as a salary or hourly wage, and is the most traditional form of earning money. This type of income requires continuous effort, meaning you need to trade your time and labor for money.

Active income is typically tied to a specific time commitment, such as working 9-to-5. The amount of active income you earn also tends to be directly related to the amount of work you complete. Once you stop working, the income stops too.

With enough active income, you may be able to invest in something that generates passive income down the road (more on that below).

Recommended: What Is Residual Income?

Examples of Active Income

Active income can come from a number of different sources. Here’s a look at the some of the many ways you can earn active income.

•   Your job: One of the most common ways to earn active income is through salaried employment. Whether you receive a fixed salary or an hourly wage in exchange for your work, your income is directly tied to the time and effort you put into your job.

•   Freelance work: Since you are providing a service in exchange for pay, freelancing is considered a form of active income. Whether you’re a writer, graphic designer, programmer, or do any other type of contract work, you earn money only when you complete specific tasks or projects.

•   Gig work: Taking on a side hustle like driving for a rideshare or food delivery service, or any other involvement in the gig economy, qualifies as active income.

•   Commissions: Many professionals involved in sales earn active income through commissions. This type of income depends on performance, where you earn money based on sales or completed deals.

•   Bonuses: Some jobs offer bonuses in addition to a regular salary. These bonuses are often tied to performance metrics and are considered active income since they require achieving specific goals.

Recommended: 33 Ways to Make Money From Home

What Is Passive Income?

Passive income refers to money you earn with minimal effort or direct involvement after an initial setup. Unlike active income, which requires continuous labor, passive income flows regularly without the need to trade time for money on a daily basis. Passive income can come from investments, royalties, or business ventures where you’re not involved in the daily operations.

While passive income often requires upfront work or capital investment, the idea is that the income will continue to flow with little or no day-to-day labor. This type of income is appealing because it can help you build wealth and financial security over time.

Examples of Passive Income

Like active income, there are a number of ways to earn passive income. Here are some of the most common sources of passive income.

•   Dividend stocks: Dividend-paying stocks offer a way to earn passive income by investing in shares of companies that distribute part of their profits to shareholders. Investors receive regular dividends without needing to manage the company.

•   Bank interest: When you deposit your money into a savings account, you earn interest just by letting it sit there — the ultimate form of passive income. The higher the interest rate, the more you can earn. High-yield savings accounts offered by online banks typically generate more passive income than traditional savings accounts.

•   Rental Income: Owning real estate and renting it out is a popular form of passive income. Once the property is rented, the owner collects monthly rent without much day-to-day involvement, especially if they hire a property management company.

•   Royalties from intellectual property: Authors, musicians, and inventors can earn royalties from their intellectual property. Once a piece of work is published or a patent is licensed, the creator can receive passive income from each sale or usage.

•   Automated online businesses: E-commerce stores that use drop shipping or automated sales systems can generate passive income. Once the system is set up, little involvement is required to maintain the flow of revenue.

Recommended: 12 Ways to Make Money on YouTube

Active vs Passive Income: What’s the Difference?

Active and passive income serve different purposes and offer distinct advantages and disadvantages. Here’s a look at some of the key differences.

Potential Yearly Income Made

Active income is generally more dependable and predictable, especially if it’s from a salaried or hourly job with a set number of weekly hours. However, the potential for active income often depends on how much time and effort you can dedicate. The ceiling for active income may also be capped by your line of work and industry standards.

Passive income, by contrast, can be hard to predict and is generally less dependable, since it may be susceptible to market volatility and other external factors. However, the potential for income can be higher, since earnings aren’t limited by how much you can work. Once established, a source of passive income can continue to generate money indefinitely and potentially provide a significant annual income stream.

How These Are Taxed

Active income and passive income are taxed differently by the internal revenue service (IRS). Wages, salaries, and commissions are all taxed as ordinary income, meaning they fall under the standard federal and state income tax brackets.

The tax rate on passive income, however, can vary, depending on how it is earned. For instance, long-term capital gains (from selling investments held for more than a year) and qualified dividends are generally taxed at lower rates than ordinary income. However, rental income, interest payments, and royalties may be taxed at ordinary rates.

Since this is a complicated area of tax law, it’s a good idea to work with a licensed tax professional when managing taxes for passive income streams.

How These Incomes Affect Lifestyle

Active income requires that you regularly work to generate money. People who rely solely on active income are typically bound to a fixed schedule, which can limit flexibility and put limits on leisure time.

Because passive income requires minimal (or no) participation, it can lead to a more flexible lifestyle. However, this assumes you have enough passive income flowing in each month to pay your bills and other expenses. If that’s the case, you might be able to travel more freely, focus on volunteer work, or spend time pursuing personal passions. Or, passive income might supplement your full-time active work, allowing you to save more for retirement or meet other financial goals.

The Takeaway

Many people rely on active income, which requires active, ongoing participation in the workforce and related to how much time you can dedicate to working. Passive income, by contrast, provides the opportunity for ongoing earnings with minimal effort after the initial setup.

While active income is generally more predictable and secure, passive income can help you build financial security over time and improve your work-life balance. Even if active income is your main source of income, generating some degree of passive income can boost your emergency savings and help you meet your short- and long-term financial goals.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What are the pros and cons of active and passive income?

Active income provides immediate, predictable earnings but requires continuous work. A key benefit of this type of income is a dependable paycheck, but it’s limited by your available time and energy. If you stop working, the income stops too.

Passive income, once established, requires minimal ongoing effort. The downside is that it often takes time, capital, or initial effort to set up, and the income may be less predictable at first. Over time, however, it can grow and supplement active income without any increase in daily labor.

Do all people need to have passive income?

You do not need passive income, especially if you’re content with your career earnings and you’re building savings for the future. That said, having passive income can be beneficial. After the initial setup, passive income allows you to earn money without much additional effort. Passive income can supplement active income and allow for more flexibility and financial freedom.

Can you live solely off of passive income?

Yes, living solely off passive income is possible, but reaching this goal often involves years of saving, investing, and cultivating sources of passive income. Many people strive for this through financial planning and investments that eventually generate enough income to cover living expenses.

Is active income better than passive income?

Both active and passive income have pros and cons. Active income requires ongoing work but can mean a steady paycheck. Passive income typically requires an initial investment of time and money and may be less dependable than active income. Once established, however, passive income can then keep cash flowing your way without ongoing work. Ideally, you want to have both active and passive income.

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Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

A derivative is a financial instrument that derives its value from an underlying asset, such as a stock or bond, or a benchmark such as a market index. Derivatives are considered leveraged products because, for a minimal investment, the investor can control a much larger position.

Derivatives work as a contract between two parties: a buyer and seller. The derivative is a secondary security, meaning it is not an asset itself, but rather it tracks the value of an underlying asset. The value of a derivative is based on market events, price changes, and other factors related to the underlying asset.

Experienced investors often use derivatives to place bigger bets, to help hedge their investments against future loss, or to profit from upcoming market shifts. Some investors also use them to profit or speculate on commodities, such as gold or oil. They can serve different purposes for different people, such as limiting risk related to possible future events.

How Does a Derivative in Finance Work?

A derivative is a legally binding contract that can apply to various asset classes, including futures, swaps, and options trading. It outlines the terms, rules, and costs for a potential future transaction based on the performance of an underlying asset.

For instance, if an investor has a significant amount of a particular stock with an unrealized gain, they might choose to enter into a derivative contract that gives them the ability to sell it at today’s prices on a future date. This may provide them with some protection against future losses.

Derivatives are also a way to give investors exposure to a certain asset class without having to actually buy the assets. Derivatives are leveraged contracts, in that the investor pays a smaller fee to control the underlying position.

The seller of a derivative doesn’t have to actually own the underlying asset, and in many cases the buyer never owns the asset directly either. Derivatives provide exposure to the asset’s value rather than trading it directly.

Derivative Example

A derivative contract, such as a call option, grants the options buyer the right, but not the obligation, to purchase shares of a particular stock at a predetermined price of $1,000 per share (the strike price) within a six-month period (the expiration). The standard options contract is for 100 shares.

The appeal of this strategy, and the appeal of derivatives in general, is that the buyer is able to purchase the right to buy the underlying asset, at the strike price, on or before the expiration — and only pay the cost of the contract, which is the premium. In other words, options (like other types of derivatives) enable investors to make bigger trades than they could with just cash.

Types of Derivatives

There are two categories of derivatives: obligation-based contracts and option-based contracts. Obligation-based contracts include swaps and futures. These form an obligation between both parties to fulfill the terms of the agreement.

Option contracts give the parties the right, but not necessarily the obligation, to fulfill the contract transaction.

Options

Options are a common type of derivative that give traders the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a set time frame. Since the value of an option contract depends on the price movements of the underlying asset, it’s considered a derivative.

Traders use options for speculation or to hedge against potential losses, but they carry risks, including the possibility of losing the premium paid upfront (for buyers), and the potential for significant losses, particularly for uncovered (naked) option sellers.

Recommended: Popular Options Trading Terminology to Know

Futures

With futures contracts, the buyer and seller set a price for the future exchange of an asset or commodity. The contract includes the price, the amount, and the future settlement date. The contract obligates both parties to fulfill the contract.

Traders are required to deposit margin funds, which is a fraction of the contract value. They may also need to post additional funds, known as maintenance margin, to cover potential losses.

Once the contract is entered into, the price of the underlying asset is tracked daily, and any gains or losses are added to or removed from the trader’s account until the contract is sold or expires. Futures contracts are traded on regulated exchanges, while similar contracts, known as forwards, are sold over the counter (OTC), allowing for more negotiation but less regulatory oversight.

Swaps

Swaps are contracts traded over the counter for the exchange of financial terms or cash flows such as interest rates and currencies.

Companies can swap types of interest rates in order to get better terms. Often, one rate is variable and the other rate is fixed.

With currency swaps, companies can invest overseas with a lower risk of exchange rate fluctuations.

What Is Margin?

Margin requirements for derivatives trading differ somewhat from standard margin trading in stocks. In futures trading, traders must deposit an initial margin, which is a fraction of the total contract value, to open a position. They may also need to post maintenance margin to cover potential losses if the trade moves against them.

In options trading, margin requirements depend on whether an investor is buying or selling an option. Buyers pay a premium upfront, while sellers (writers) may need to post margin to ensure they can fulfill their obligations if the option is exercised.

Swaps may also involve margin requirements, particularly in over-the-counter markets, to mitigate counterparty risk. The specifics vary based on the contract terms and the regulatory environment.

How Derivative Trading Works

A derivatives contract says that the investor will either earn or pay money related to the underlying asset. Although there is an initial cost for the derivative contract, traders may be required to contribute additional maintenance margin if the underlying asset moves against their position.

Once a derivative contract is entered into, the buyer can either hold onto it until the expiration date when they purchase the asset at the agreed upon price, or they can sell the contract to someone else, potentially for a profit. Trading one derivative for another one prior to the contract end date is common.

Generally the contract will sell for only a tiny amount of the value of the underlying asset, but the value of the contract can fluctuate along with the underlying asset price fluctuations — and as the expiration date draws closer.

There is a small initial deposit required to enter into the contract. This amount varies depending on the type of derivative and market conditions. For example, there could be a contract to purchase 100 shares of a stock for $3,000 per share, and the option contract might trade at a premium of $3 per share.

Before entering into a derivative contract, it’s important to understand how derivatives work and read what the contract entails, including the disclosure statement. There will be an agreement to sign stating that both parties have read and understand the terms.

Trading derivatives also requires ongoing work and attention. Markets can change quickly, and there may be obligations throughout the contract period, such as tracking the value of the underlying asset.

Costs

Derivative contracts come with various costs depending on the type of contract and the market where they are traded. Common costs include:

•   Options: Premiums, commissions, and potential assignment fees

•   Futures: Initial margin, maintenance margin, and exchange fees

•   Swaps and Other OTC Derivatives: Transaction fees and counterparty costs

Derivatives are best suited for experienced investors who understand the potential risk of loss involved. Consider consulting with a financial professional to understand the full costs for specific trades.


💡 Quick Tip: When people talk about investment risk, they mean the risk of losing money. Some investments are higher risk, some are lower. Be sure to bear this in mind when investing online.

Pros and Cons of Trading Derivatives

There are several pros and cons to trading derivatives. Some of the main ones are:

Pros

Derivatives traders enjoy several advantages, including:

•   A hedge against the risk of future losses

•   An opportunity for speculation

•   Exposure to an asset without having to purchase it

•   Can help predict future cash flows

•   Provides the ability to lock in prices

Cons

In addition to the advantages, there are several drawbacks that derivatives traders should understand.

•   Trading derivatives is very complex and can be risky for inexperienced traders

•   The derivative contract may not be liquid or easily sellable on the open market

•   There is a risk of losing more than you invest

•   Online scams in derivatives trading are common, adding to the risk

•   There are fees and costs associated with the contract

•   There may be ongoing maintenance and time commitment required

Financial Derivatives Regulations

Regulations around derivatives vary depending on where they are traded. The Securities and Exchange Commission regulates derivatives traded on registered national securities exchanges, while over-the-counter (OTC) derivatives are typically subject to less oversight and may involve bilateral agreements between parties.

In the latter case, the parties negotiate the terms of contracts on their own. Sometimes these parties include banks and financial institutions regulated by the SEC. Futures brokers and commercial traders must be registered with the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC).

The Chicago Board Options Exchange (CBOE) is the most well known options exchange platform and is regulated by the SEC. These regulating bodies help to prevent fraud and abusive trading practices and promote fair, orderly markets.

The Takeaway

Derivatives can be a riskier type of investment but they can provide value to both institutional and retail investors’ portfolios when used appropriately, and with a clear understanding of the risks involved. Trading derivatives requires more work than simply buying and selling more traditional securities, but the additional risk and additional work can also yield greater rewards.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Photo credit: iStock/fizkes