What You Need to Know About Credit Card Debt
While credit cards are useful tools to get the things we need or want, it’s easy for credit card debt to get out of control quickly. Learning how credit cards work is vital to using them effectively. Understanding how credit card debt works helps when you spend too much money on credit and need to figure out a way to find relief. With the proper information, you can determine how to get out of debt quickly and use credit to your advantage in the future.
If you have already gotten into trouble with credit card debt, a vital factor in solving your debt problems is acting sooner rather than later. High interest rates credit cards mean your credit card debt problems will only get worse the longer you wait. Take our Free Debt Analysis to see where you stand financially. We are always here for you if you need help. Just call 1-888-881-3619 to speak with a certified credit counselor for a free consultation to learn about your debt relief options.
How Credit Card Debt Works
Most credit cards work the same way—they are unsecured debts that typically carry fairly high interest rates. The biggest factor in determining how debt accrues on each credit card is the APR or annual percentage rate (also commonly called the interest rate). The higher the APR, the faster interest will build on the account.
If you buy the same $500 item on a high interest credit card, you will pay more money for that item than you would with cash or on a low interest credit card.
- Pay in cash = $500
- Pay with a low interest credit card (15% APR) = The typical minimum payment would be around $15; if you only pay the minimum, you pay $650.83 over 43 months. The same $500 item costs you $650.83 if you use credit.
- Pay with a high interest credit card (22% APR) = The typical minimum payment would still be around $15; if you only pay the minimum, you pay $779.80 over 51 months. That’s a total of $779.80 for the exact same item you could’ve had for $500—$279.80 extra just for using your credit and making small monthly payments!
Avoiding Credit Card Debt Traps
Finding the card with the lowest interest rate isn’t the only step you can take to help you use credit cards successfully without getting into a bind. In addition, a lowest interest rate credit card may not always be the best choice, because introductory rates change and penalty rates could be staggering. It’s important to read any credit card offer carefully before you activate your account.
Another good way to avoid credit card debt problems is to read each credit card statement you receive carefully. This helps assess where you are with each particular debt. You can also make sure there aren’t any discrepancies with your account. If you aren’t paying a particular debt down fast enough, you may want to consider a balance transfer or debt consolidation solution.
If you have bad credit and only get offers for high interest rate cards, taking these offers may be setting yourself up for financial failure. Instead of making debt problems worse, consider secured credit cards as an alternative, since these often have much lower interest rates. Just be sure to pay on time, every time, as you could risk losing your collateral if you don’t. In addition, by making your payments on time, every time you can start rebuilding your credit; this helps you qualify for better interest rates in the future.
A note on kids with credit cards: More and more parents are giving kids their own credit cards, but your kid can cause serious credit debt problems if you’re not careful. Make sure to recognize the credit dangers that can come with teenagers and credit cards!
How to Get Out of Debt
If you’ve already gotten into trouble with credit card debts, find a debt solution as quickly as possible. Otherwise, you just end up paying more money in high interest and penalties. Even if you are still making your monthly payments on time, your debt may already be a problem. Remember, just breaking even doesn’t equal financial stability!
Take our Free Debt Analysis to assess your debt situation or call 1-888-881-3619 to start on the path to finally finding debt relief.
| Credit Cards: What You Need to Know | |
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This basic ‘Credit 101' publication explores the pros and cons of using credit, provides a guide and calculation formula to help consumers find out how much credit they can afford, and offers advice on what elements should be considered before applying for a credit card, how to build a positive credit history, and existing credit rights. |
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