From time to time, people forget to pay their credit card bills. It’s unfortunate, but it happens. Payment history has the most impact on your credit scores, so a missed payment will cause your score to drop a few points, but an isolated incident will only hurt you temporarily.
When missing payments becomes a habit, however, things get trickier. First of all, that pattern of missed payments exists on your credit report, meaning it’s going to significantly hurt your credit standing. Second, it’s going to take you longer to recover from that hit, and you have to start making your payments on time if you want to rebuild your credit. On top of all that, you may have trouble accessing other forms of credit or fail to qualify for affordable interest rates because of your low credit score, not to mention all the late fees you have to pay on your credit card balances. (You can see how late payments are impacting your credit scores for free on Credit.com.)
In the U.S., about 1.7% of credit card accounts are more than 30 days past due (this includes people who have let their bills go unpaid for more than 60 and 90 days, as well), according to 2014 third-quarter data from Experian Intelliview. In some states, the average delinquency rate is much worse. The states with the 10 highest credit card delinquency rates in the third quarter are all in the South or Southwest regions of the country.
Q3 credit card delinquency rate: 1.96% of credit card accounts more than 30 days past due
Delinquency rate: 2%
Delinquency rate: 2.03%
Delinquency rate: 2.04%
Delinquency rate: 2.13%
5. West Virginia
Delinquency rate: 2.15%
Delinquency rate: 2.23%
Delinquency rate: 2.24%
Delinquency rate: 2.27%
Delinquency rate: 2.82%
Delinquency can indicate a cardholder faces one or several financial issues. In the best-case scenario, cardholders who are 30 or more days past due on their credit card bills simply forgot to make the payment — perhaps they weren’t paying attention, missed the statement in the mail or didn’t realize they weren’t set up to make automatic payments. Whatever the reason, most credit card delinquencies involve consumers who are only a bit more than 30 days past due, anyway.
Once the bills have gone unpaid for more than 60 days, things tend to be more serious. Perhaps you can’t afford the minimum payment due or have had to make tough choices that put credit card bills at the bottom of your priority list.
When it comes to prioritizing debt payments, there is no one right answer for what you should pay first. If you’re at risk of losing your home or car if you don’t make those payments, you should pay those. If you have student loans, you may want to focus on those, because they’re rarely dischargeable in bankruptcy. At the same time, credit cards tend to carry some of the highest interest rates among consumer loan products, meaning your credit card balances will grow more quickly than others.
If you’re able to afford your essential bill payments, you should start making a plan to pay down your debt. You can see how long it will take you to reduce your card balances to zero by using this credit card payoff calculator, which can also help you plan how much to pay each month, depending on how quickly you’d like to get out of debt. Use the motivation that comes with the new year to commit to paying off your credit card balances and improve your credit score along the way.
More on Managing Debt:
- 5 Tips for Consolidating Credit Card Debt
- Understanding Your Debt Collection Rights
- Top 10 Debt Collection Rights