Millions of consumers have credit card debts that grew from $10 to thousands of dollars in a very short period of time. According to the CFPB, over 5 million new credit cards were issued in June 2017. While some debt does not seem like a big deal, just the slightest change in your budget can make it very burdensome. Some consumers will take advantage of their good credit, spending until they have no money left to make monthly payments. When this occurs, you will be left with no other option but to get a second job or file bankruptcy. Below, you will discover more information on why credit card debt is the worst type of debt.
Debt Is Expensive
Swiping a credit card to obtain items that you would not be able to afford otherwise is very exciting. However, when it comes time to pay the debt back, the excitement will fade away. Everyone must pay a price for the debt they create and that price comes in the form of interest. Credit card companies typically charge a higher interest rate than other financial institutions, including credit unions and traditional banks. With such a high interest rate, it will seem like you are never going to pay down the debt. The longer it takes you to pay the credit card debt off and higher the amount of the debt, the more interest you will end up paying over time.
Items Can Cost Double
If you are contemplating utilizing a credit card to purchase a sofa, you should first consider the interest rate. If the sofa costs $2,500, it could potentially end up costing you $5,000, if you choose to purchase it with the credit card. Making minimum payments can also drive up the total cost, even if you pay a little extra each month, you will still end up paying more for the sofa. By the time you pay off credit cards, you will end up spending thousands of extra dollars for the items you purchase.
Not Used Appreciating Assets
There are things in your life that you will not be able to afford to buy outright, like a house, new car, or a college education. However, these things can be considered a good debt, because they will help pay off in the long run. Unfortunately, credit cards are not used for these types of assets. Most of the time credit cards are used on meaning less junk like a new 80-inch flat screen TV, or a gym membership that you only use one a month. Of course, there is nothing wrong with buying these items on a credit card, but the interest is absolutely avoidable and will raise the price of your monthly payment significantly.
Hefty Late Fees
Once you are in debt with your credit card it will be incredibly hard to make the required monthly payments. When this happens, you almost experience an avalanche effect. Your debt grows, you cannot afford to pay it, and the credit card company just keeps adding on late fees and additional fees for over-exceeding the credit limit. Basically, at the end of the day the debt will continue to grow until it swallows you.
So What’s the Solution?
If you’re buried in credit card debt, now is not the time to panic. The first step is to take a step back to truly understand how you got into debt in the first place. Was it careless spending? Were all the items you purchased truly necessary? Once you come to terms with your spending habits, you can then figure out a plan of attack to pay off your debts.
One of the best ways to pay off credit cards is to get a debt consolidation loan. Don’t fall victim to debt settlement companies promising to slash your debt by 50%. These programs rarely work. A debt consolidation loan can help you be on a single monthly payment that won’t change. Payoff, for example, is a prime example of a lender who specializes in helping you pay off credit cards. You can also check out companies like Lendingtree to help you find the best personal loan company. No matter the case, it’s important to do your research to make the best decision.
Enjoy Our Content?
Subscribe to get the latest from "Everybody Loves Your Money."