Credit Card Debt

The concept of credit cards hit the world market more than 40 years ago and it has never looked back. Today almost every American holds 5 credit cards on an average from different financers and banks. It is definitely the most convenient method of payment which enables you to purchase most goods and services without having botheration to carry cash around with you. Today credit cards are widely used and accepted by innumerable merchants all around the world. While the tiny plastic has brought in this great revolution in the world of consumerism, there are many pitfalls to it that all credit card users should be aware of. These pitfalls range from credit card fraud to the many hidden costs of using a credit card. However, the problem that is coming out strongest among all these is that of credit card debt.

Remember you pay more than you use! - There is no free lunch in this world. While credit card is an easy option of payment without the cash being drawn immediately out of their back accounts, the users usually forget that they have to pay an extra price in the form of interest charges. When you use your credit card, the amount is charged on to your account. At the end of the month the credit card company adds interest charges to the balance and sends you the bill. The usual rate of interest on credit cards is approximately 30% on an annual basis. Moreover the interest calculation is done on an average daily basis making it more difficult for the customers to keep a track of the total amount of interest being charged on his card. This factor compounded by any late payment charges (if applicable) can make the total amount the customer pays for a purchase manifold of the actual amount of goods purchased.

The Credit Card Revolving Debt Cycle

It has been noted as a worldwide phenomenon that a very high percentage of credit card users lives beyond their means. As a result they draw up a huge balance on their card, often maximizing it. Such high debt means that a large portion of the payment a user makes on his credit card goes towards interest payment, and the principal amount is only marginally paid off. When the user realizes this, he usually takes another credit card to which he can transfer the balance of his previous credit. Little does he realize that by this he is not reducing the total debt he owes but simply revolving his debt from one credit card company to another. This is called the revolving debt cycle. The only way to break a revolving debt cycle is to pay off the debt in full without using another credit card.

One of the best ways to break a credit card revolving debt cycle is through a debt consolidation loan. If a user has more than one credit card and loan, he can transfer the full balances from all the debts into one consolidated loan and pay regular monthly installments to just one lender. This makes it easier to keep track of the total payment made and due.