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Understanding The Real Consequences Of Credit Card Debt

[ 0 ] January 29, 2009 | admin

These days possessing a credit card is not felt to be a luxury or a status symbol but is viewed as being a necessity and most people has not one but a billfold full of credit cards. As a result the credit card business has grown rapidly in recent years and now the marketing of credit cards is also a huge business in itself. However along with this growth in credit cards has also come a tremendous growth in credit card debt.

As the name suggests a credit card merely gives you credit with the credit card company and the limit of that credit will be set when the card is issued and then reviewed from time to time thereafter. In other words whenever you use your credit card you are simply borrowing money from the credit card company and can go on borrowing as many times as you wish to until you have reached the limit of your credit.

The moment you start borrowing money from your card issuer you will start paying 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 will vary from one card to the next but, occasionally, the initial interest charged is at 0% and if you pay back the full amount borrowed in a month at the end of that month then you will pay no interest on that money. But, if you repay only part of the money borrowed, you will be required to pay interest on the remainder of your borrowings until it is repaid. Interest again varies of course, but it is common to find that you are paying double figure interest rates which can frequently run to 20% or more a year.

Now if you are sensible and only 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 use a credit card in this way and a surprisingly high number of people make only the minimum payment required each month, which is generally about 10% of the outstanding debt. However herein lies the real danger when it comes to credit card debt.

As the months come and go you continue using your card so that your debt grows but pay back only the minimum amount required, which also grows from month to month. but, as interest charges are added to your account each month, your account balance actually grows faster than you are spending and this really begins to escalate after only a few short months because you are also paying interest on the interest which is added to your account every month. Of course what often happens is that the minimum payments become increasingly difficult to meet and before you know where you are you are merely meeting your monthly interest charges and not paying back the money which you have actually borrowed in the first place.

As long as you use them correctly credit cards can be very useful but, if you do not use them properly or do not understand exactly how they work, then your card debt can spiral out of control in no time at all.

Therefore, before you begin running your credit card account up to its limit and find yourself in need of debt assistance ensure that you understand exactly how your credit card works. And, if you have already run into difficulties then do not hesitate when it comes to asking for help in settling credit card debt.

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Category: Credit Card Debt Relief

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