What is the problem with too much credit card debt?

How many people do you know who actually carry cash on them any longer?  Most people have a few select credit cards in their wallet.  In fact credit cards have become something of a necessity in today’s digital market place.  For example, try to buy an airline ticket or reserve a car without one; you may find yourself unable to complete the transaction. The problem is that most consumers own many more than one credit cards.  This has led credit card holders with a large crisis called “Credit Card Deb”.  

Credit cards, as the term suggests, are cards on which you can get credit to borrow money to buy goods and services that you may not have funds in the bank to cover right away.  A person’s credit card is a representative of the credit account that you hold with the issuing bank.  Whatever payments you make using your credit card are actually your borrowings that contribute towards your credit card debt. Your total credit card debt is the full amount due and owing to the bank that lent you the funds.

At the end of each month you must pay your debt in full or incur very large penalties known as interest and late fees.  So, you receive a monthly statement or your credit card bill which shows your full account balance.  However, you have the option of making a fractional or “minimum” payment too, in which case you don’t incur late fee but just the interest charges on your credit card debt.  If you don’t pay off your credit card debt its entirety, the interest charges too get added to principal, which results in your credit card debt increasing, more so because the interest rates on credit card debt are generally higher than the interest rates on other kind of loans.  More specifically, the interest charges add on to your account balance each month to form the new remainder due and owing.  If you continue making minimum payments or simply do not make any payments, the interest charges are calculated again on the new credit card debt.  A Consumer will end up paying interest on the last month’s interest too. Thus your credit card debt accumulates rapidly and soon you find that what was once a relatively small credit card debt has ballooned into a big amount which you find almost impossible to pay. Moreover, if you don’t still control your spending habits, your credit card debt rises even faster. This is how the vicious circle of credit card debt works.

Often the answer is not as simple as just stop spending, as the pile of debt has grown to such a large amount that your best option is to file bankruptcy and discharge all of your credit card debt, or at least try to settle for pennies on the dollar and stop using the cards for a while.

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