Credit Card Debt

Credit card debt is one of the most common financial problems faced by consumers. Currently, there is over $771 billion dollars accounted for in credit card debt in the United States alone. With the current state of our economy, this number continues to increase with each quarterly review. Even the most budget savvy consumer can fall easily victim to credit card debt.

Most of the time, people will accept a credit card as a means to have emergency funds on hand if the need arises. Credit cards can be a lifesaver in cases of emergency car repairs, or unexpected expenses. Once you use the credit card, it becomes easier to use it for situations that perhaps are not as urgent. Over time, as the consumer begins to use the credit card more often, they may find that they are even using it on everyday purchases such as groceries. This is a great way to fall into the "credit card trap", and begin accumulating enough debt that you are unable to pay it back in full each month.

At first, credit card debt doesn't seem like too much of a concern. You may feel that the smaller monthly payment is a lot better than coming up with a much larger sum of money for the goods and services you have purchased with the credit card. When you are only paying back a minimum payment each month of $25 for example, it doesn't seem that it could ever get out of hand. Eventually those minimum payments increase as credit lines decrease, setting the groundwork for future financial issues.

Most standard credit cards are an unsecured line of credit. This is unlike a secured line of credit, where you actually have to provide the funds for the card upfront before you can use them. Secured cards work more like a debit card from your bank, whereas with unsecured credit cards, you are accessing funds available to you through your credit card lender. This sounds like a great deal, until you have to repay the funds, and then some.

Every month you will accrue interest on your credit card debt if you do not fully pay off your balance. This means that the amount of charges you've added to your credit card debt will increase even with no additional purchase. Each month, even if you closely monitor your credit card usage, if you still have a balance on the card, you will continue to accrue more interest. Basically, this means for each payment you make, you receive another charge. For example, of that $25 minimum payment made, perhaps only a fraction of the amount actually went toward paying off the balance.

Eventually, as your credit card balance increases, so will your interest payments, and eventually, you are making less and less progress on actually paying off the amounts you have charged. If you default on your payments, you will also incur extra fees. Being late with payments can damage your credit rating, as well as having too high of a debt to balance ratio. Credit card debt is one of the main causes for the need to file bankruptcy. Be wary of accumulating too much credit card debts, as it is a hard trap to free yourself from.

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