The Credit Card Debt Express

For many, credit card debt is a fast downhill ride not easily stopped.  Where will the train stop for those onboard the credit card debt express? For households all over America, the total US credit card debt in 2017 reached an all-time high of $1.023 trillion. In fact, credit card debt accounts for 26.7% of America’s total consumer debt according to the Federal Reserve. On a per capita basis, the average credit card debt is $3,137 in the US.  Households laden with credit card debt have an average credit card balance of $15,654. The average interest payment being made on credit card balances is estimated at $1000. However, of this amount, zero dollars are going into the debt principal but instead, towards interest and fees.

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Credit card debt can be a good thing

Most people would agree getting a credit card is beneficial for different reasons. You get to build up your credit and a high credit score helps you secure lower interest rates when you want to borrow money to purchase a home or a vehicle.  Credit cards help you budget, track your expenses, and are used to purchase things online, pay for costly items, and rent a car, to name a few credit card uses. In some occasions a credit card can even be a lifesaver. Besides, no one wants to carry cash around at home or abroad. In case you lose your credit card, a simple phone call will serve to give the alert. But there are drawbacks. When you borrow more than what you can pay back in a short amount of time, credit card debt can be detrimental to your financial status.

The abyss of credit card debt

As desirable as they are, credit cards can become a nightmare to deal with in real life since many people easily misuse them. Before making a purchase they will later regret, credit card users would be better off thinking how they are going to pay from the start. Not surprisingly, people who continuously use their credit cards irresponsibly to obtain instant pleasure will start to feel like they are plunging down a precipice without the proper landing gear.

Cardholders are not the only ones to blame. Credit card companies are in the business of getting more and more credit card holders to be in debt.  They constantly offer promotional 0% interest balance transfer ads, low interest periods, cashback points and air travel miles. All of it sounds great, but in many cases, people don’t read the fine print on these offers and get further into debt.  Once people realize that the perks are heavily in favor of credit card company, they amy start to figure it out. For instance, some credit card companies offer a low percent on purchases, let’s say it’s 2 cents on the dollar but you are required to spend x amount of dollars before you turn that 2% into cash.  If you don’t pay off the amount and you instead pay let’s say, 22% interest on it, your earnings of $20 would not even be enough to pay the monthly minimum due.

The credit card landscape

In may instances, there isn’t a better alternative to credit card use. Perhaps that’s what makes it so easy to jack up credit card debt.  Families who are hit with the unexpected will most likely resort to using credit cards to meet emergency medical expenses and purchase first necessity goods such as food, utility bills, gas, or medications.  Let’s face it, we don’t live in a perfect world, one moment you’re employed, the next one you’re waiting three weeks for an unemployment check to come in. Meanwhile, the rent is due and your kids expect you to serve them dinner every night.

You know you’re heading for credit card inferno if you are only able to make minimum payments on your cards and you’ve maxed them all out one by one.  The reality is that if you spend more than you earn every month you’ll sink deeper and deeper into the bottomless pit of credit card debt. What is worse, if you are forced to miss payments your credit score will lower even more than what it did when you maxed out your credit cards.  

In many cases, card holders even make payments on one credit card utilizing the cash advances of another. Credit card debt can even strain your relationship with loved ones. If you find yourself purchasing movie tickets, fast food, and groceries on credit, you know you’ve hit credit card doom.

After maxing out your credit cards,  missing a few payments, or being late on payments, that new credit card loan you applied for is most likely out of the picture. What is more, unexpected expenses continue to show up.  You’re receiving calls from creditors, overdue bills pile up and panic starts to set in when even filing for bankruptcy fees are owed on credit card debt and continue to accumulate interest. Pretty soon, interest and fees start growing and sometimes even surpass the principal.

Don’t do this if you’re in credit card debt

Credit card bills don’t just go away. But panicking is not the answer. There is help. Recovery from credit card debt is possible through various programs that are in existence to help you get on your feet again. In actuality, there are several programs to choose from.  As with credit card management, knowing what the fine print says and understanding your current situation can not be overrated.

To begin with, the worst thing you can do is not do anything. Not facing credit card financial responsibility will only accrue more interest on the debt and your plunge will be deeper and deeper.  Let’s say you’re in a situation in which you owe $5,000 in credit card debt and your paying 15% interest. If your minimum payment was $113, it would take you approximately 168 months to pay off the debt and you would have paid $6,889 in interest alone which is actually more than the initial principal.

Filing for bankruptcy is another fallacy you should avoid.  It may not relieve you of all your debt and there are filing fees and attorney fees to consider.  Plus, you may not get the full story. Chapter 7 is the bankruptcy law effectively dealing with credit card debt. While you may be able to forego medical expenses, personal loans, installment loans, department store credit cards, cell phone bills and others over $500, it will not erase mortgage, auto loans, child support, back taxes, spousal support, bad checks, insurance premiums and other secured debts.

The penalty is not worth it

There are severe consequences to filing chapter 7 bankruptcy.  New credit will be very difficult to secure. Your interest rates will be very high. You will be labeled and identified as high risk to creditors.  Your auto insurance policy premiums will increase. Renting a house will be more difficult and buying one will be out of the question. During the next ten years that the bankruptcy stays on your credit, you will not be able to receive a low to moderate interest on a loan or basically any credit card at all. Besides the ten year limit on you credit file, your personal file will include it for life.

Keep the cards open

A very common mistake credit card debtors make is to close their credit cards. This is detrimental to your credit score. Don’t do it, especially the ones you have had the longest.  Because 30% of your credit score is based on your credit card activity, your credit has a better chance of improving even if your debt-to-ratio is very high. Your credit usage or how much credit you can actually utilize is based on the relationship between how much you owe and how much you have used. If you, fo instance, have a total credit of $5,000 and you have charged $1000, your credit utilization will be 20% which is not bad.  What will happen if you close continue to owe but not have 0 credit utilization and that will hurt your credit score.

Another consideration is your credit history or how long you’ve had credit. This would also be affected if you close your card since 15% of your credit score is based on your credit history. A long credit history, even if has had its bumps, may be better than none at all.

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Top two solutions to pay off your credit card debt

To get over the hump of credit card debt and restore your credit there may be many solutions but none better than the these two.  The first one is known as snowballing and the second one debt stacking. Experts like Dave Ramsey, who came up with the method, agree on one thing -snowballing takes focus. First you organize your credit card debt from highest to lowest balance.  The lowest balance will be easy to pay off first while you’re still making minimum payment on the rest. Once the first one is paid for, move on to the second one and use the freed up money from the first one to make higher than minimum payments on the next one in line until you finish paying them all off.  Every time you pay one off you gain more and more credit energy to propel you to the next just like a snowball gets bigger and faster as it rolls downhill. Some debts are low enough to pay off at once while others may take months and even years. The more debt you pay off the more expendable money you’ll have to put towards the next credit payment and so on. You may even be able to get a second job and use the snowballing method until you are debt free and relieved, get on your feet again.

Stacked-up debt

Another method of paying off debt is actually the opposite of the snowball method.  Instead of ordering your credit card debt from greatest to least you order them from, you got it, least to greatest.  But with this method the interest rates, not the balances are the ones stacked up. Paying off the debt with the highest interest rate is the point here because it will save the most money to pay the highest interest first.  However, if you have a high balance on it it can take forever to get the balance down.

Asking for help

Many people with credit card debt find themselves in trouble without knowing all the facts. Knowing what the law says or being able to perform complex computational forecasts are skills and knowledge many people don’t have access to or the patience and time to learn. If you have credit card debt problems, turning to experts for help may be the best way to find your way out of debt. Some programs package the debt into one lump sum and put you on a payment plan you can live with for 24 to 48 months before you get out of debt.

Getting out debt is not easy, it may feel like you’re plunging into an abyss, but if you organize your bills and ask fo help, you may find yourself on your way to recovery soon.