How Credit Cards Lure Us Into Debt
Topics: credit card debt, credit card consumption, credit cards
Credit card consumption is the biggest plague facing most Americans. You need credit cards to obtain most big ticket items which have lured most of us into a credit trap. Not only is having one credit card enough but it is also rare. The average American beholds possibly 4 credit cards to their name. 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 debt problem and need a consumer debt solution. In order to understand what credit card consumption actually means, we need to understand the workflow associated with the use of credit cards as such.
The basic way a credit card works is essentially paying for an item based on your credentials. Your credentials consist of your job history, income, past purchase history, etc. You need credit cards when you do not have cash on hand to pay for a purchase. In essence you are literally borrowing money like you would a regular loan to pay for something.
Your credit card is a representative of the credit account that you hold with the credit card supplier. You are trusted with a certain amount established by the credit card lender that you agree to use for whatever uses you see fit. 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 credit card supplier. Instead of having to repay for your purchase with the full balance you are given the opportunity to make smaller payments as long as you like.
The credit card issuer sends you a monthly bill statement indicating what you owe for the month and how much your total balance is. The issuer gives you deadlines to pay for your credit card and you must adhere to them or receive penalties such as late fees and additional interest charges. The monthly payment is normally a minimum amount that you pay which keeps you in good standing with the credit card issuer. This is where the debt problem begins. The minimum amount is small and the average person decides to continue paying those amounts without considering the danger.
The danger in paying the minimum monthly amount is you are only paying the interest on the card. You are not touching the principal which indicates you will be paying the debts associated with that card for years with no debt reduction progress. 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 do not 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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