This study develops a progressive damage failure criterion to address limitations of traditional instantaneous strength criteria that cannot capture damage evolution or quantify accumulation mechanisms in coalbed methane (CBM) wellbore collapse analysis. A damage variable D defines four evolutionary stages—initiation, propagation, acceleration, and coalescence—coupled with stress redistribution and drilling fluid invasion effects to enable quantitative collapse period prediction. Three-dimensional numerical simulations using FLAC3D 7.0 (Itasca Consulting Group, Minneapolis, MN, USA) reveal that stress anisotropy controls directional damage initiation, while increasing the horizontal stress ratio K substantially reduces the safe collapse period and narrows the safe drilling fluid density window. Horizontal wells exhibit significantly higher collapse pressure requirements than vertical wells, providing a quantitative basis for trajectory optimization. Model predictions show good agreement with published experimental results, with maximum deviations of ≤10% for the collapse period and ≤9% for damage depth. Field applications demonstrated notably fewer wellbore stability incidents and improved drilling efficiency compared to conventional design approaches, validating the practical effectiveness of the proposed methodology for unconventional resource development.