Credit card delinquencies were down in 2012, the lowest in several years, but experts predict that trend won’t last throughout 2013. Credit card users are at risk of losing money on late fees and penalty interest in addition to credit score losses from late payment reporting to the credit bureaus.

Credit card, auto loans, and student loans debt balances all continued to increase through the end of 2012. Increased debt balances means increased monthly debt payments. The risk of late payments is compounded by slow job growth and expiring payroll tax cut. The loss of the payroll tax cut might even lead to lower net incomes for some households. Rising debt payments and stagnant or lower monthly income will lead to some trouble with affording all the bills each month.

For a few years during the economic downturn, banks were only lending to prime borrowers, those who were most likely to cover their debt payments. Thus, fewer people were falling behind on payments. But, banks have increased their lending to riskier borrowers, including those who haven’t yet established a strong credit history. These riskier borrowers are more likely to become delinquent on their debt payments. Experts predict this will contribute to the increase in credit card delinquencies.

TIME says that banks aren’t going to stop lending to subprime borrowers, even knowing the risks of these borrowers defaulting, because banks hope these borrowers will sign up for other banking products. And of course, for banks it's about earning revenue. It seems they're willing to take a short-term loss if it means gaining long-term profitable customers.

Knowing the risk of delinquency is greater this year means that credit card users should be on guard against late payments. How do you do this? Continue to assess your ability to repay a credit card balance before you charge. Don’t take for granted that you can still afford to charge a certain amount just because you can afford it last year or even last month. Consider your other monthly expenses before creating a credit card balance and avoid getting in over your head.

Save money while your finances are good. If you have extra money during one month, add it to your emergency fund rather than spend it. Doing this will help build a cushion that you can rely on if money is tight for a month or two.

Create a habit of saving up for big purchases rather than charging them on your credit card. The lower your credit card balance, the easier it will be to make your payments.

If you’ve been paying more than the minimum and suddenly can’t afford to maintain that same payment amount, just pay the minimum. It’s better than missing your payment completely.

Don’t rely on your credit cards when times get tough. A bigger credit card balance means a bigger monthly payment and eventually, you may not be able to maintain that level of spending. Instead, look for ways to cut back your spending, even if it means forgoing some of your favorite services for a few months.

There may be others who fall behind on their payments this year, but make it your personal goal not to be one of them.

Source: TIME.com