In the past, simply obtaining a credit card was a difficult process that was only available to the most creditworthy individuals. In the modern day, even people who have poor credit can access credit cards fairly easily.
People with poor or bad credit, however, have to pay high interest rates and fees related to credit card debt. And even though the over-usage of credit cards is very common in modern times, the financial consequences associated with it can be severe.
Features of Credit Card Debt
Credit cards are popular due to the fact that they allow consumers to purchase products and services that may not otherwise have been affordable. The credit card debt that often results from exceeding one's credit card limit can usually be repaid quickly, however, as long as one pays the full amount of credit card balance due for all billing statement cycles.
Credit card fees and interest-related charges contribute to credit card debt. In some cases, it is possible for a reasonably small balance to rapidly grow into a large amount of debt due to these additional fees.
Consequences of Credit Card Debt
In addition to having to pay higher interest charges and late fees, excessive credit card debt can result in a lower credit score. A lower credit score causes one to have to pay higher interest rates on new loans and creates difficulty with renting apartments.
Insurance companies frequently use one's credit score to come up with an "insurance score" that determines the rate one must pay for insurance. Another consequence of credit card debt is having to pay a higher default credit card rate for the credit one has debt on.
A creditor may also take one to court for credit card debt, in which case one could have to contribute court penalty fees as well as the debt.
Credit Card Debt is Widespread
The amount of debt that each American family owes differs depending on each family's spending habits in addition to the amount of available credit each family can access.
IndexCreditCards.com reports that the average credit card debt in America per adult equals $4,013. The average debt per American household is $7,861. The Federal Reserve Board has estimated that as of 2009, Americans owed a total consumer debt of approximately $928 billion.
Expert Insights Regarding Credit Card Debt Management
Personal finance experts are mixed in their opinions about how consumers should go about credit card debt management. Some experts believe consumers should go about paying it off as aggressively as possible. Others advise that credit card debt is actually helpful because it allows consumers to meet many of their needs.
Misconceptions About Credit Card Debt
It is a common misconception to believe that as long as one pays the minimum monthly credit card payment, however, one can quickly escape from credit card debt and regain a zero balance. The truth is that it is very difficult to pay off debt quickly because of compound interest-related expenses. Another common misconception about credit card debt is that it is tax-deductible.
Credit Card Debt Consolidation Services
Those with a great deal (more than $2,000 worth) of credit card debt can consolidate it with the help of a debt service. It is best to consult a non-profit debt management company for assistance with financial education.
Credit card debt is a serious, widespread problem that should not be taken lightly. It is important to contact a debt service immediately if one has a large amount of credit card debt.
Source:
Index Credit Cards: Average Credit Card Debt $4,013 Per Adult, $7,861 Per Household
