Miss a credit card payment, and you'll suffer the consequences. Your credit score will drop significantly, since on-time payments are the number one factor in determining your credit score. You'll pay late fees and possibly incur a penalty APR. Interest charges will pile up on your unpaid balance.
So why do so many Americans miss credit card payments? A new NerdWallet study suggests the biggest reason may be summed up in two words – "I forgot."
According to the study, 35% of Americans who miss credit card payments simply forget to make them – edging out the one-third who don't have the money left over after paying for essentials and the 32% who had to deal with an unexpected financial emergency.
At least you have an excuse if cash flow is your problem – but it's not much of an excuse. Over half of study respondents (56%) blame the rise in delinquencies on overspending on non-essential items. However, people are too forgiving with their own habits. Only 16% of those with delinquent accounts blamed overspending on non-essentials as the reason. What's "essential" for me may be "overspending" for you.
The overall debt statistics are sobering. Total household debt almost reached $13.3 trillion in the second quarter of 2018, according to the latest Household Debt and Credit Report from the New York Federal Reserve. The NerdWallet study reported that in the first quarter of 2018, over $23 billion in credit card balances were overdue by thirty days or more.
Credit card delinquency rates are nowhere near the peak of 6.77% in the second quarter of 2009, as the Great Recession took its toll on Americans' wallets. However, delinquency rates have been on a slow and steady rise since the 2.12% rates reported in the first half of 2015. Delinquency rates for the first quarter of 2018 are up to 2.54% and show no signs of slowing.
If you think the results are skewed by the credit card habits of millennials – as approximately 40% of respondents did – guess again. It's true that millennials are more than twice as likely as other generations to say their delinquencies were the result of overspending on non-essential items. However, the younger Generation Z has a higher rate of serious delinquency, while the older Generation X holds the highest average credit card balances and reports the highest rate of members making delinquent payments.
The distribution of delinquency increases over the past year is disturbing. Delinquencies are up across all generations except for Generation Z, with a distinct age-based pattern. Older generations show the greatest increase in delinquencies – implying that Americans who have been able to make their payments for years are increasingly unable (or unwilling) to make credit card payments.
Regardless of your generation, don't make life more difficult by missing a credit card payment. Use any one of the alerts, reminders, and apps available today – or use them all if that's what it takes. Tie a string around your finger. Tie a string around your credit card if you must. Adjust your budget to make sure you have at least the minimum payment available to submit.
Make at least the minimum payment on time, every time, and you'll keep your credit score afloat – and then you can move on to a budget that allows you to pay the entire bill at the end of each month. It won't be easy, but the sacrifices you make today will pay off tomorrow through better credit scores, as well as the confidence of living within your means.
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