Understanding the True Meaning of Credit Card Debt

By: Donald Saunders

Nowadays having a credit card is no longer considered to be something of a luxury or a status symbol but is seen as being a necessity and most people posses not one but several credit cards. As a result the credit card business has grown by leaps and bounds in recent years and now the marketing of credit cards is also an enormous business in itself. But with this growth in credit cards has also come a huge growth in the amount of credit card debt.

As the name suggests a credit card simply allows you a line a credit with the credit card issuer and the limit of that line of credit will be specified when the card is issued and then reviewed periodically thereafter. In other words whenever you use your credit card you are simply borrowing money from the card issuer and can go on doing so as many times as you like until you have borrowed up to your credit limit.

The moment you begin to borrow money from your credit card issuer you will begin to pay interest on the money you have borrowed and each month you will be required to pay back at least some of the money borrowed. The rules of course vary from card to card but, in some cases, the initial interest charged is at 0% and if you pay back the full amount borrowed in any month at the end of that month then you pay no interest charges on that money. However, if you pay back only part of the debt, then you will be charged interest on the remainder of the money until it is paid back. Interest again varies of course, but it is not uncommon to pay double figure interest which can often run to more than 20% a year.

Now if you are sensible and simply use your credit card for convenience when you are shopping and then pay off the full debt each month then you are fine. However, most people do not operate their credit card in this manner and a surprisingly high number of people make only the minimum payment each month, which is often about 10% of the outstanding debt. But herein lies the real danger with credit card debt.

As each month comes and goes you continue spending so that your debt grows but pay back only the minimum required, which also grows from month to month. However, because interest is added to your account each month your balance actually grows faster that you are spending and this really starts to escalate after only a few short months as you are also paying interest on the interest charges which are added to your account each month. Of course what happens all too often is that the minimum monthly payments become increasingly difficult to meet and before you know where you are you are simply meeting the monthly interest charges which are being added and not actually paying back the money you have actually borrowed to spend.

Used properly credit cards can be very useful but, if you abuse them or do not fully understand how they work, then your credit card debt can spiral out of control in no time at all.

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