Household consumer debt has steadily increased in recent years. The U.S. Government Accountability Office reports that credit card debt reached a new record as of October 2023. It was also no shock when the Federal Reserve Bank of New York reported that roughly 9% of credit card balances increased in the past year.
With credit card delinquency rates increasing, more Americans are facing the question of what they may need to do if they’re in trouble. A thoughtful plan can help.
What is credit card delinquency?
If you don’t pay your credit card on time, your account is delinquent. Missing your payment by a few days typically results in a late fee and potential interest. A late payment like this may not significantly impact your credit score.
However, once your monthly payment is 30 days late the card issuer will often report your missed payment to the credit reporting agencies. Missing payment due dates by 60 or 90 days has more dire circumstances, including reduced credit lines, potential account closure, and the possibility of being sent to collections.
Don’t ignore the credit card issuer
If you’re facing a delinquent credit card payment, don’t panic. Acting out of fear and ignoring the issuer, while understandable, typically only causes further harm.
According to Kristy Kim, founder and CEO of TomoCredit, “It is important to explain the situation honestly and inquire about possible solutions.” Credit card issuers obviously want their money, but avoiding them typically results in the bank taking harsher action.
“Contacting the credit card issuer promptly demonstrates a responsible approach to managing debt, which may positively influence the issuer’s willingness to help,” Kim adds.
Issuing banks often have hardship programs that can help, even if you don’t know how much you can pay on the card. Joe Camberato, CEO of NationalBusinessCapital.com, notes “When you’re proactive and transparent, you’re usually able to negotiate for options like payment pauses or temporary adjustments.”
Be prepared to owe even more money
Upon missing your minimum monthly payment, expect to have a late fee hit your credit card. This will occur with every missed payment. Worse yet, you will incur interest on any unpaid, outstanding balances on your credit card.
Once you’re more than 60 days delinquent on your credit card, the issuing bank typically activates a penalty APR. This makes carrying the debt more onerous.
Kim notes, “The penalty APR is typically much higher than the standard APR for purchases or balance transfers. It can vary by issuer but is often around 29.99% or higher. The exact rate will be specified in your credit card agreement.”
This rate applies to all new transactions and can stay on the account for good. However, if you return to good standing you may get a reprieve. “If the penalty was imposed due to a late payment, some issuers might review the account after six months of consecutive on-time payments and potentially revert the APR to its previous rate,” Kim says.
Furthermore, if you have rewards on your credit card, you may lose them. Many credit cards require your account to be in good standing.
➤ SEE MORE:How a credit card late fee cap could hurt consumers
How will credit card delinquencies impact your credit score?
Working to have a good credit score is essential to a financially healthy life. Credit card delinquencies often harm your credit. Every situation is different, but it’s fair to anticipate a reduction in your credit score.
Camberato notes, “A 30-day late payment might drop your score by 60 to 110 points. At 60 days, expect another 30-to-60 point drop, and over 90 days, it can lead to a reduction of more than 200 points.”
Such a drop can result in increased rates with other loans. Worse yet, lenders often see a delinquent credit card on your credit report as a red flag and may choose not to extend you credit.
Recovery, unfortunately, isn’t typically fast either. “Recovery can start within a few months if you address the delinquency promptly, though the late payment will stay on your report for seven years,” says Kim. “Full recovery may take two to three years with consistent on-time payments and responsible credit use.”
How to avoid a delinquent credit card payment in the future
Avoiding credit card delinquencies requires action, not passivity. Moving forward and improving your personal finances requires taking an honest look at your budget. Camberato suggests not overthinking it. “Stay on top of your finances to avoid missing payments. Create a budget, track your expenses, and live within your means.”
Here are helpful tips to avoid future delinquent payments:
- Establish autopay: This is especially helpful if you have multiple cards or are typically busy. Most credit card issuers allow you to create automatic payment plans. You can request that the institution electronically pulls out the minimum payment, or more, from your bank account. This can help you avoid the worry of potentially missing a payment and accruing unnecessary fees and interest.
- Use your calendar: Don’t like the passive approach of autopay? Create a calendar notification for a week before your due date so you won’t forget to make a payment.
- Stop using your credit card: Are you wanting to become debt-free? Consider not using your credit card. This will keep you from adding further charges to your card so you can focus on repaying the indebtedness.
- Create a simple budget: Budgeting doesn’t have to be scary. Thankfully, there are various apps that help track your spending so you know where your money goes. Find one that works for you, and make it a point to monitor your spending.
Taking these steps can not only help with your credit card debt, but they can positively impact other areas of your financial life as well.
The bottom line
Rising credit card delinquency rates are concerning. Falling behind on payments can have a significant impact on your overall credit and life goals. Taking wise action can help you stem the tide and establish a firm foundation for your finances.
