Credit card debt is extremely common - partially because credit cards are convenient and simple to access, giving consumers a fast way to pay for everything from groceries to online services, home goods, and more. While it's difficult to get by in today's digital world without a credit card, the bigger challenge is managing credit card debt. If you have high card limits and tend to spend freely, things can get out of hand quickly. Even the most experienced credit card users can fall into financial traps.
If you're worried about credit card debt, it's not time to cut up your cards. Instead, you need to learn about the most common mistakes people make with credit cards, so you can develop better spending habits.
Common Causes of Credit Card Debt
When a newly minted credit card arrives in the mail, most people don't max it out immediately. The balance creeps up slowly as you use it for more and more expenses.
Cash Advances Through a Credit Card
Whether rent needs to be paid or a little extra money is needed for tuition payment, a cash advance provides instant money to solve an immediate financial crisis. Using your credit card's cash advance option means you can access cash as a loan against your credit limit. It's like withdrawing cash using a debit card at an ATM, except the withdrawn funds count against your credit limit. As a result, you need to pay the money back, with interest.
Large Purchases Placed on Credit
Another factor that can drive up credit card debt is one or more large expenditures, such as medical bills, furniture, or car repairs. When you need to make a purchase or pay a bill quickly, a credit card is one option for accessing the funds you need. Typically, when these large purchases are made, the consumer intends to pay the balance off quickly. When that doesn't happen, excessive interest charges come into play, making it hard to make any headway. When this kind of spending happens across multiple accounts, consumers may feel like they need to consider credit card debt consolidation to minimize the number of payments made per month.
Trouble Keeping Up with Debt
The temptation to overspend is a challenge, especially when you're having a hard time keeping up with bills and other everyday expenses. Consumers faced with hardship often take on a large amount of credit card debt paying for basic living expenses. The accumulation of these transactions leads to a larger and larger balance. Once you add interest costs and late fees, it starts to feel impossible to make even minimum payments.
Contributing Factors: Why It's a Challenge to Pay Off Credit Card Debt
Credit card debt can be a life-long sentence if you're not careful. It's easy to become so buried under debt that your monthly payments are merely staving off interest expenses. Numerous factors will play a role in your ability to pay down credit card debt. If paying off all of the debt doesn’t seem possible, looking into credit card debt help options like credit card debt reduction may be the best way forward.
Credit Card Account Structure
Not only do your purchases increase credit card debt, but the way the card is structured will also play a role in how quickly the balance maxes out. For example, many cards have a high Annual Percentage Rate (APR) that stacks up the interest charges rapidly. When you have a high APR, it's not enough to make only minimum payments, because those funds are simply going toward interest charges.
Maxed Out Credit Account
A credit card that you've charged to or beyond its limit can be especially difficult to pay down. At this point, you may start running into issues with declined payments, credit limit fees, and other costs. One option is to apply for a credit limit increase, but this solution only causes you to carry a bigger credit card debt load.
Misuse of Revolving Debt
Revolving credit means you have a changing balance on your credit lines, with payments and transactions affecting that balance. Credit cards are the most common type of revolving debt, with ongoing transactions that increase the debt load and payments that decrease the overall balance. Paying off the credit card balance simply frees up the card for more spending in the future. Most American consumers have excessive revolving debt because they use credit cards to pay for daily purchases.
Solutions: How to Knock Out Your Credit Card Debt
If you want to get out of the trap of credit card debt, then it's important to have a plan. You can use one or more of several strategies to pay down your debt and be relieved of the financial burden you're carrying.
Credit Card Minimum Payments
The credit card company indicates a specific amount that needs to be paid each month to keep your account in good standing. However, paying only the minimum due is the slowest method of paying off the bill. The interest will continue to pile up each month, perhaps stretching the repayment period out by a decade or more.
Credit Balance Transfers
Some consumers use credit card balance transfers to stave off heavy interest charges and start paying down the debt. If a credit card offers 0% interest on balance transfers, it could be a great way to start eating into those balances. However, note that the 0% offer is typically limited to a specific period. If your balance isn't at $0 by the end of the period, you may face retroactive interest expenses that put you in a worse position than you were before.
If you can't see a way to meet your debt obligations, it might make sense to work with a debt settlement company that can help you find credit card debt relief. The debt settlement provider will reach out to your creditors to negotiate a settlement on your behalf. Your credit card debt obligations shift to the debt settlement company, giving you one simple payment each month. The advantage is that you can control interest costs, eliminate multiple late fees, and simplify the payoff since you no longer need to manage multiple cards and balances. The bonus benefit is that you'll likely pay only a portion of your overall debt balance.
Credit card debt in America is rising. Most consumers know that they need to manage their credit card debt; however, it's not surprising that many find it difficult to stay ahead of the payments and interest costs. If you're facing balances that seem to grow each month, then it's time to consider options that will lead to financial independence from credit card debt.