As of September 2017, 38 % of U.S. households had some credit card debt, and households with balances averaged a level of credit card debt greater than 1TP4Q16 000.
In fact, total revolving debt in the United States now stands at just over $1 billion! Although initially designed to serve as a convenience for the American consumer, credit cards are unfortunately often misused in a way that eventually leads many down the path of financial hardship.
The Different Types of Credit Cards
Traditional credit cards are widely accepted and commonly used to charge everyday expenses. Rewards cards have become quite common and offer benefits including cash back, airline miles and points. These can be redeemed for hotel stays, gift cards and other useful perks.
For those who travel frequently and/or tend to spend a bit more, premium rewards cards that offer the possibility of free airline tickets and entry to airport lounges may make sense despite the significant annual fees they can carry. Meanwhile, balance transfer cards have long been in vogue. Given the low interest rate advantages offered to those seeking credit card debt consolidation from higher interest rate credit card debt.
There are also other niche credit cards, such as retail cards issued by specific retail chains. They can be used exclusively at the chain of stores issuing the card, and gas cards that offer discounts on a particular brand of gasoline or provide cash back when specific spending milestones are reached.
The Silent Killer Of Credit Card Debt.
At a fundamental level, a credit card functions as a personal loan to the consumer. Which is best paid in full at the end of each billing cycle. This is where most people go wrong, at first. Too often, credit card charges are not paid in full quickly, causing them to contribute to an ever-growing pile of revolving debt that is continually subject to high interest rates ranging from 12% to 25% or more.
The debt problem of the credit card is insidious, as it can multiply almost invisibly to those affected. It is not uncommon for a pattern of behavior to emerge that includes somewhat indiscriminate spending habits accompanied by minimal payments against a growing amount of credit card debt. However, life goes on. Bills get paid, needs remain affordable and are met, things generally feel under control.
Slowly but surely, however, a credit card debt problem is evolving. Over time, thousands of dollars in interest expense can go to waste. Revolving debt puts an ever-tightening stranglehold on the debtor's financial well-being. From a credit rating impact, the higher the level of debt utilization, i.e., the percentage of available credit that was actually borrowed, the greater the negative impact on the credit rating.
Take Action On Your Credit Card Debts
There are ways to disrupt this pattern, one of which is to simply take a pair of scissors to your credit cards. This seems like an overly simplistic solution, but it works for some, and in terms of preserving your credit score, it's a much better option than closing credit card accounts.
It is important to know that your credit score will decrease after closing any credit card account. Next, it's always a good idea to design a monthly budget that can serve as the foundation for your financial well-being. Get a clear picture of your monthly after-tax income and carefully tally all expenses against that income. You should clearly write down how much money you need each month for housing, food, transportation, utility bills and other necessities.
Think in terms of using credit cards primarily for emergencies, not extravagances. If changing your spending habits sounds like a difficult proposition. Consider seeking help from a reputable credit counseling agency that can educate you while getting you on track financially. If your credit card debt has become unmanageable due to your budget and circumstances, talk to a qualified and reputable credit counselor about enrolling in a debt management plan (DMP).
In a DMP, you can simplify several monthly credit card payments into one lower payment. To a counseling agency that negotiates lower interest rates and payments with your creditors.