By Christopher
BillSavings.com Brief: Credit card debt can be extremely dangerous. This is because for many consumers, paying off their debt seems impossible. These consumers are caught in the credit card trap. Don't let this happen to you, rather pay off your balance, never pay late, and always pay more than the minimum payment.
The credit card industry is simply out of control. However, it is not only the fault of the credit card companies, but also the consumers that choose to continually rely on credit rather than paying for purchases with available funds. The reality is that once you start using credit cards irresponsibly, it is a slippery slope down to bankruptcy. This is because credit card companies always seem more than willing to continually increase credit limits as well as offer additional cards. If you have credit cards, take control of them, before they take control of you. Of course, a credit card can be a very useful financial tool especially in the case of financial emergencies such as the loss of employment or expensive medical bills, however, most credit card users do not only use their cards for emergencies buy rather to enjoy a lifestyle that is often beyond their financial means. Below are typical ways credit cards trap their customers into paying off their balances for years.
Additional cards
If you are a college student, or are just getting started financially, credit card companies will offer you cards with smaller limits such as $500. However, as college is not exactly the real world, many young people fall into the trap of using their credit cards for non-emergencies such as entertainment expenses. Their thought is that they will pay off the balance as soon as they graduate and walk into a high paying job. Unfortunately, despite the warnings of college counselors and parents alike, young people believe that a college degree is a guarantee to find a high paying job. When reality strikes that this is not necessarily the case, they still have unpaid credit cards which continue to accumulate interest charges. The same is true for those just getting started financially. They buy items, which they assume they can quickly pay off; when this doesn’t happen they often exceed their credit limit. While the obvious answer is to avoid using another card and pay off the first balance, credit card companies seem more than willing to offer additional cards. The cardholder then uses the new card to pay off some of the old card, which actually forces them deeper into debt. If you have a maxed out credit card, do not open another card. Rather, make the necessary financial sacrifices to pay off your credit card debt first.
Minimum payments
Each billing cycle, credit card users receive a statement that includes a minimum payment. Of course, what the credit card companies do not want you to know is that it could take years even decades to pay off your balance if you only make the minimum payment. Although required by law to include some of the principal balance into the minimum payment, the majority of the minimum payment is for finance charges. Do not pay the minimum payment; instead, pay off as much as you can to avoid accumulated interest charges.
Increased interest rates
When you receive credit cards, pay close attention to the interest rate or APR. This is because the interest rate is variable and can change due to a number of circumstances. For example, while many credit card companies lure new clients with the promise of a 0% introductory rate, those who are late with a payment or that can not pay the minimum charge, must then pay a higher interest rate on their next billing cycle thus negating the introductory period. The same rule applies when the introductory period is over. If you are late, can not pay the minimum charge, or even if you open another card or take out a mortgage, your interest rate can jump substantially without notification. This is why it is important to read the details instead of getting caught in the credit card trap. Everything is there in black and white, but it is up to you to read and understand your bill. If you notice that your interest rate jumped, switch to another card to avoid falling deeper into credit card debt.
8/26/2008
