Credit cards, once a novelty looked upon by many with suspicious eyes, are now a way of life. Most people in the country have at least one credit card, and among people who do carry credit card-related debt, the average amount of debt in an American household is $15,354. While not uncommon, credit card debt has negative side effects that make shedding it a welcome relief for many.
First, credit card debt is one of the most expensive forms of debt. Interest rates on credit cards are much higher than most other common forms of debt, including car and home loans. For many people, credit card interest rates can be four to six times rates for a mortgage, for example. Making minimum or small payments on credit card balances means you pay several times the amount that you originally borrowed.
Credit card debt isn’t tax deductible like a home mortgage and some other types of debt are. Not only do you end up paying a great deal of money for whatever you purchased and didn’t pay off, but you don’t get many benefits. Sure, some credit cards come with points systems that let you receive small appliances or mile rewards, but if you don’t pay off your balance monthly, chances are you are paying more for those rewards than you would if you just bought the airline ticket or small appliance yourself.
Finally, credit card debt can spiral out of control quickly, and it makes good financial habits such as saving more difficult. If you have an average amount of credit card debt, you could be making minimum payments of $500 or more every month. If you could save that money instead, you would have $6,000 in a single year.
Paying off your credit card debt is the first way to shed it. But that’s not always possible for everyone. If you are dealing with extreme debt or a sudden change in income, then bankruptcy might be a way to reset the table. By working with a bankruptcy attorney, you can find out if you qualify for filing and what the benefits might be.
Source: Investopedia, “Expert Tips for Cutting Credit Card Debt,” Gregory Bresiger, accessed Jan. 01, 2016