DANGERS OF CREDIT CARD DEBT
Credit
card debt carries with it the seeds of numerous dangers, beyond the
obvious difficulties of the debt itself. Getting into a cycle of debt
can cause damage to long-term economic well-being for an individual and
it can lock one into second-class state of living. Beyond the obvious
drain on a bank account, credit card debt carries several other notable
dangers. The looming threat of annual percentage rate increases,
universal default and that boogieman in every debtor’s
closet - bankruptcy, are all possible dangers for those who
have
fallen into
the no-win situation of credit card debt.
Percentage Rate
Increases
Annual
percentage rate increases are the most common danger to someone with
credit card debt. From the date you are issued your credit card to the
point where your debt
begins
to blossom, the percentage of interest you pay can change, sometimes
dropping, but usually increasing, due to the increasing amount of your
monthly minimum payment. As your payments grow, so to does
the interest applied to calculating further payments, leading to
further increases in said
payments.
However, this increase in your interest percentage rate is so gradual
that you will most likely not notice until your minimum payments have
reached the point where you struggle to make them.
Universal
Default
Which
leads directly to the danger of universal default. Universal default
occurs when a credit lender changes the terms of the credit card
agreement to its default state due to continuous late payments or other
problems relating to your credit card debt. This can mean a change in
interest rates, minimum payments and the application of various fees
beyond the standard late fee, including excessive monthly additions to
your normal minimum payment. When this happens, it can become
even harder to continue paying off accumulated debt, as it will most
likely increase exponentially past the point it was at before the universal default went
into play. Once it becomes too hard to pay, once the debt outweighs the
debtor’s ability to pay it down, then the threat of
bankrupty becomes very
real and
very likely.
Credit
Card Debt
Bankruptcy
Bankruptcy
occurs when an individual is unable to pay their debts and creditors.
Essentially, you’re out of money. Once this happens, in the
case of credit card debt,
credit card
companies are legally obliged to forgive most, if not all of the debt.
While this seems like a good deal, bankruptcy is something that few who
are forced to declare it ever recover from. The ramifications to future
prosperity as well the effect it will have on your credit rating (which
is needed to buy property, get loans, etc.) is not inconsequential.
Too, in many cases, credit card lenders will act to
prevent this, forgiving fees or charges, or even part of the overall
debt in order to keep the money coming in, in some fashion.
In
short, credit card debt brings with it further dangers than just an
imminent decrease in available funds. It can permanently wreck your
economic standing and harm future attempts to rebuild your credit
rating.