A Problem Called Credit Card Debt
A Problem Called Credit Card Debt
Credit cards are no more a luxury, they are almost a necessity. So, you
would imagine a lot of people going for credit cards. In fact, a lot of
people possess more than one credit card. So, the credit card industry
is growing by leaps and bounds.
However, the credit card industry and credit card holders are posed with
a big problem called Credit Card Debt. In order to understand what
credit card debt actually means, we need to understand the workflow
associated with the use of credit cards as such.
Credit cards, as the name suggests, are cards on which you can get
credit i.e. make borrowings (your credit card debt). Your credit card is
a representative of the credit account that you hold with the credit
card supplier. 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 total amount you owe the credit card
supplier. You must settle your credit card debt on a monthly basis. So,
you receive a monthly statement or your credit card bill which shows
your total credit card debt. You must pay off your credit card debt by
the payment due date failing which you will incur late fee and interest
charges.
However, you have the option of making a partial (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 in
full, the interest charges too get added to it.
So your credit card debt keeps on increasing, more so because the
interest rates on credit card debt are generally higher than the
interest rates on other kind of loans/borrowings. Further, the interest
charges add on to your credit card debt each month to form the new
balance or the new credit card debt amount.
If you continue making partial payments (or no payments) the interest
charges are calculated afresh on the new credit card debt. So you 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.
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