CNNMoney.com reports that credit card delinquencies (defined as accounts that haven’t been paid in 90 or more days) increased by 11% in the first quarter of 2009.
TransUnion.com also reports that Nevada, Florida, and Arizona have the highest delinquency rate, while North Dakota, South Dakota, and Alaska have the lowest.
The chart below compares the 60-day delinquency rate of five different states to the national average. You can see that Florida and California took the lead starting in the last part of 2007.
Possible reasons for the increased credit card delinquency rate
- Consumers are using their tax refund checks this year towards daily living expenses, instead of using them to substantially pay down their credit cards as they traditionally do.
- In those states where the delinquency rate was the highest, unemployment figures are also high.
- Consumers have begun to use credit cards for “needs” (like utility bills and food) rather than “wants” (such as vacations and big ticket items). When the credit card bill comes due, they discover they aren’t able to make the minimum payments and they become delinquent.
Remember that being delinquent on a credit card account can damage your credit rating, making it harder to get approved for new loans and lines of credit in the future. While not paying your credit card bills may seem like your best (or only) option, defaulting can bring on months or even years of frustrating debt collector calls and ruined credit scores.
So, what is the solution? Or, for that matter, IS there a solution?
Well, unfortunately, there is no one particular way to solve the problem, but there are ways for consumers to get a handle on it.
First, and most obvious, stop using the card(s)! If you cannot afford it, don’t buy it. Look at purchases you can cut back on (or completely cut out) so that you will have money for the necessities.
Second, contact your credit card companies now to explain your situation. Do this even if you’re already delinquent. Ask first for a reduction or elimination in interest and/or finance charges. Then, ask if your minimum payment can be lowered.
Most credit card companies will be willing to work with you. Granted, some of them won’t, but you will have at least tried. If nothing else, they’ll know that you have good intentions.
These are immediate steps you can take. From there, you might want or need to explore other options, such as credit counseling. Credit counselors are trained to deal with creditors, especially credit card companies, and may be able to accomplish what you yourself weren’t able to. So consider talking to them. Not only will they negotiate with credit card companies on your behalf, they can also help with medical expenses and other bills. If they are able to get the payments lowered on those, then the money saved there could be applied to your credit card balances.
There are already encouraging signs of the delinquency rate falling. By tightening our budgets, being smart with our credit, and getting professional help when we need it, we can reduce the risk of delinquency.
This guest post was written by Jessica Mousseau. Jessica is a freelance writer specializing in debt consolidation and credit advice. She holds a degree in Journalism & Media Studies from Rutgers University.