The Problem of Our Age Has a Name and it is Called ‘Credit Card Debt ‘

Once upon a time, not so long ago the adage “Cash is King” was the mantra of business. Credit Cards were virtually unheard of and most credit was done by “Letters of Credit”, or “Revolving Credit”. Of course in the 1960's and 1970's Credit Cards started to take off and were at first a sort of a luxury for the rich and upper crust.

Credit cards are no more a luxury, they are a necessity. Let's face it, the whole “New Economy” depends upon them. So, you would imagine that people are going for credit cards without abandon.. In fact, a lot of people possess more than one credit card. So, the credit card industry keeps growing by leaps and bounds. In fact I am sure most of you receive at least 3 solicitations a week from different banks (let alone the idiotic commercials on TV, radio and in magazines).

Credit Cards a great tool if one knows how to use them properly and is careful in their use. However, too many people do not take care, as they don't really pay attention to what they are doing (usually because Mommy and Daddy took care of the bill when they were younger), so the credit card industry and credit card holders are posed with a big problem called ‘Credit Card Debt’. In order to understand ‘credit card debt’, we need to understand the work flow 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 credit card supplier. Normally, if one uses them properly, one settles their credit card debt on a monthly basis. Of course sometimes emergencies arise and one has to go further into debt than planned. This is fine as long as you budget and don't overdue it.

So, you receive a monthly statement or your credit card bill which shows your total credit card debt. Ideally you should pay off your credit card debt by the payment due date, failing which you will incur late fees 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 then get added to the debt. Of course this is how Credit Card Companies and Banks make money off Credit Cards (and why they advertise their use so you would have to pay them interest).

If you don't pay off the balance every month, 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 and so on and so forth until one finds themselves in the deep spiral of endless debt.

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.

So remember to keep a budget and track your purchases so you don't overspend and everything will be fine and you can keep yourself out of debt and enjoy your life.

Mahalo.


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Tips and techniques outlined in our ebook “Debt Free Living”.

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