Debt Consolidation

The Dangers of Credit Card Debt

Posted on: July 01, 2008
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In today's world of instant gratification, it's no surprise that credit cards are so popular. When consumers want a product, they don't want to wait, even if they don't immediately have the funds to cover the cost. A credit card is a useful way to manage money and a great tool for spending when money isn't available. However, with credit cards come bad spending habits and credit card debt. Spending above your means will only lead to debt and financial problems.

One of the most dangerous things about credit cards is that credit card companies have very high interest rates. If an individual can't pay off their entire balance right away, they will incur very high charges until the balance can be paid off. Many credit card holders only pay the minimum balance on their credit card, which may only cover the interest rate charges. Racking up charges on a credit card month after month will only make managing payments harder in the long run.

Hidden fees are often the bane of any cardholder and the main component of credit card debt. Credit card companies often have high fees for just about anything, from late payments and balance transfers to "annual fees" charged just for being a cardholder. If consumers let these fees build up, credit card debt could become a serious issue. A few late payments and an overdraft fee could seriously damage credit ratings and make credit card debt a much more serious issue.

Students often have many problems with credit card debt due to their financial inexperience. Credit card companies send incessant credit card offers to students with promises of free gifts, low interest rates or other perks. While it's a great idea for young people to get a credit card in order to build good credit, many students are not ready for the financial responsibilities that come with credit cards and may get themselves into debt. Students going off to college often want freedom from their parents, yet cannot have financial freedom, so families are sometimes stuck paying the bills. Some colleges offer courses on effective money management for students, which could be useful for students that are not used to spending.

The only way to recover from credit card debt is to admit to the problem and then climb out. A common option for individuals deep in credit card debt is debt consolidation. Debt consolidation entails taking out a loan in order to pay off other loans and debts. This is especially beneficial for those with credit card debt because the interest rates on these types of loans are generally much lower than the high credit card rates.

Once out of debt, it's important not to make the same financial mistakes as before. Many who have had serious debt problems in the past opt to leave their credit cards at home so they won't be tempted to use them while shopping. A less extreme way to manage your credit cards is to commit to paying off the entire balance each month, and not charge more than you may be able to pay off. Whatever you choose to, once you achieve financial freedom, your best bet is to watch your spending and build your credit back up!