It’s also possible people are choosing to spend cautiously. A nationwide survey conducted by Debt.com of over 1,000 respondents found people have used credit cards less during the pandemic. Additionally, travel restrictions and stay-at-home orders meant Americans couldn’t spend as much on entertainment and leisure.
Although delinquency rates are still low, how long will this trend last? According to expert predictions, not long. Here are a few outcomes our experts forecast.
Spike in delinquency rates
Experts predict that post-pandemic delinquency rates will spike once the dust settles.
Gonzales states, “As the economy reopens from the coronavirus pandemic, it’s likely that credit card delinquencies will rise again, as will the amount of credit card debt collectively owed and the average household balance.WalletHub’s early projection for credit card debt in 2021 is that U.S. consumers will add roughly $50 billion to their total balance, which will inevitably come with a higher delinquency rate.”
Dr. Guy Baker, founder of Wealth Teams Alliance, also agrees that we’re likely to see a rise in consumer debt as the economy reopens. It’s possible that the cost of living will go up, resulting in a domino effect on savings and debt.
“Consumer spending and debt are a tenuous brother to the economic expansion of the country. To the extent the economy is contracting, expect debt to rise, savings to fall, and prices to rise. Unless the economic activity keeps pace, many consumers will be caught between lagging compensation, rising prices, and the need to fulfill their spending demands.”EXPERT: Dr. Guy Baker, Wealth Advisor and Founder of Wealth Teams Alliance
Rise in credit card judgments
Courts have been closed due to the pandemic and likewise, credit card providers have deferred payments. Once this lifts, we could see an increase in people being sued for overdue credit card debt.
Simons predicts, “We’ll soon see case numbers similar to those after the bubble popped in 2008: 14,000 debt lawsuits in LA county a month.”
If you end up with a default judgment, there are still options. You could try to negotiate a settlement with your credit card issuer, but you may have to fork out a lump sum. However, paying off collections is better than ignoring it and watching your score continue to drop. You can also challenge the judgment and have it overturned if you find errors, such as being sued for expired debt.
Return to pre-pandemic spending habits
Some people cut back on spending because of the economic uncertainty, but experts aren’t convinced these changes are permanent. Gonzalez provides insight stating, “Considering that over 47 million Americans expect to miss a credit card due date in 2021, it would seem that people might not significantly change their financial habits in the near future. Plus, the lessons learned during this pandemic could be soon forgotten, which is what we witnessed after the Great Recession.”
You can avoid missing payments and slipping into unhealthy financial habits by organizing your finances. Now that the government is rolling out vaccines, and the economy is picking up, it’s a good time to enact a plan to pay down credit card balances.
Nathan Grant, Senior Credit Analyst at Credit Card Insider expands on this: “If you’ve been able to take advantage of deferments or forbearance for any existing debts, prepare your budgets for upcoming changes once you have to make additional payments each month towards those debts that were delayed due to the pandemic.
A good way to get ahead is to budget for paying beyond just the minimum amounts due each month, especially on credit cards, which generally have higher interest rates.”
Digging out of the credit hole caused by delinquent credit card bills
Although creditors offer some leniency when you’re late initially, once they start reporting credit card delinquency to the credit bureaus, you end up in a hole. And digging out of that hole can be tough, especially when your finances are already distressed.
To stop past-due credit card debt from appearing as negative information on your credit history, you must pay the full delinquent amount to bring your account current. In other words, once you’re behind your credit history will stay behind until you catch up. Even if you make a payment, it won’t show that you did in your credit history. It will still show as delinquent.
This can have a huge negative impact on your credit score. Every month where the payment is listed as delinquent will ding your score. So, month after month, your credit score will take damage until you catch up.
How to pay off delinquent credit card debt
If the financial hardship you faced was only temporary, then you need to make catchup payments. This involves paying as much of the delinquent balance on the line of credit as quickly as possible.
For example, if your account became past due because you lost your job, once you get a new job you need to dedicate as much money as you can to bring your account current.
If the financial hardship you’re facing is more long-term or caused by budget issues, then you may need to take more aggressive measures to catch up with your credit card bills. The first thing you should do is call a nonprofit consumer credit counseling agency. This is a free service that can help you identify the best way to get out of debt for your unique financial situation. You will have three primary opinions.
Debt management program
If you fall behind on payments, you typically need to pay all of the money you owe before your account becomes current on your credit report. A debt management program fast tracks that process. Most creditors will agree to bring the account status current after only three payments on the program. This means a debt management program can get you out of debt faster and ensure less damage to your credit score.
If you only have a few delinquent credit card accounts, but the rest are current, the credit counselor will usually recommend this option. A debt management program is essentially a professionally assisted debt consolidation plan that repays your debt faster than you can with minimum payments.
Debt settlement program
If you have a lot of accounts that are behind and even some that are already charged off, then you may be better off with a debt settlement program. This focuses on getting you out of debt for a percentage of what you owe.
Past due accounts continue damaging your score, so the faster you bring them up to speed, the better. Settling collections could free up cash to bring your past-due accounts current. Or you may decide to settle everything to get out of debt quickly, so you can focus fully on rebuilding once you’re out of debt.
The credit counselor will also discuss bankruptcy if you’re facing severe financial hardship. They may recommend pre-bankruptcy counseling.
If you need help managing your delinquent credit card debt, you can get it today. Reach out for a free consultation and personalized plan for managing your debt.