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Credit card debt has become a way of life for a significant percentage of the American population. As of September 2017, 38% of American households carried some variety of credit card debt, with balance-carrying households averaging a credit card debt level exceeding $16,000.
In fact, total revolving debt in the United States now stands at just over one billion dollars! Though initially designed to serve as a convenience to the American consumer, credit cards unfortunately are often misused in a manner that eventually leads many down the road of financial difficulty.
The Many Different Types of Credit Cards
Traditional credit cards such as 
are widely accepted and commonly utilized to charge everyday expenditures. Rewards cards have become quite common, offering benefits including cash back, airline miles, and points that can be exchanged for hotel stays, gift cards and other useful perks.
For those who travel often and/or tend to spend a bit more, premium rewards cards offering the possibility of free airline tickets and admission to airport lounges can make sense despite the significant annual fees that may come attached to them. Meantime, balance transfer cards have long been in vogue, given the low interest rate advantages offered to those seeking credit card debt consolidation from higher interest rate credit card debt.
There are also other niche credit cards such as retail cards issued by specific chain stores that can be used exclusively at the store chain issuing the card, and gas cards that offer discounts on a particular brand of gasoline or provide cash back when particular spending milestones are reached.
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The Silent Killer of Credit Card Debt
On a fundamental level, a credit card functions as a personal loan to the consumer that is best paid off in full at the end of each billing cycle. This is where most people go wrong – at the outset. Far too commonly, credit card charges are not quickly paid off in full, resulting in them contributing to an ever-expanding pile of revolving debt that is continually subject to high interest rates ranging from 12-25%, or higher.
The problem of credit card debt is an insidious one, as it can mushroom almost invisibly to the afflicted. It is not uncommon for a pattern of behavior to emerge that includes somewhat indiscriminate spending habits accompanied by minimum payments made against a growing pile of credit card debt. Yet, life goes on. Bills are paid, necessities remain affordable and provided for, things feel generally under control.
Slowly but surely, however, a credit card debt problem is evolving. Over time, thousands of dollars in interest expense can go to waste, with revolving debt placing an ever-tightening choke hold on the financial well-being of the debtor. From a credit score impact, the higher the level of debt utilization – that is, the percentage of available credit actually borrowed – the greater the negative impact on a credit score.
Take Action of your Credit Card Debt
There are ways to interrupt this pattern, not the least of which is to simply take a pair of scissors to your credit cards. This may seem like an overly simplistic solution – but it does work for some – and in terms of preserving your credit score, it is a far better option than closing out credit card accounts.
It is important to know that your credit score will drop after closing any credit card accounts. Next, It is always a good idea to devise a monthly budget that can serve as a foundation for your financial well-being. Get a clear picture of your monthly after-tax income and carefully account for all expenses against that income. You should clearly write down how much money you require each month for housing, food, transportation, utility bills and other necessities.
Think in terms of using credit cards mostly for emergencies, not for extravagances. If changing your spending habits sounds like a difficult proposition, consider seeking help from an accredited credit counseling agency that can educate you while putting you on the right track financially. If your credit card debt has become unmanageable given your budget and circumstances, speak with a skilled and reputable credit counselor about enrolling in a debt management plan (DMP).
In a DMP, you can streamline multiple monthly credit card payments into one simple lower payment to a counseling agency who negotiates lower interest rates and payments with your creditors.
How Debit Cards Differ from Credit Cards
When a consumer uses a credit card, they’re borrowing money to make a purchase. However, when someone uses a debit card, they’re really just spending money that already resides in a bank account. From a debt accumulation and interest expense standpoint, debit cards are obviously better than credit cards.
With a debit card, money for expenditures is deducted from the associated bank account with the issuing bank sometimes charging a transaction fee. In the event a bank account gets depleted to zero, any subsequent debit card charges will be declined until the bank account is replenished.
Credit cards accumulate balances and carry over revolving debt from previous billing cycles that lead to monthly bills with due dates and minimum required payments. When a credit card balance reaches its designated credit limit, any attempted purchases will be declined, but the monthly bills will keep on coming.
There are some advantages that credit cards possess over debit cards related to security and rewards programs. If your credit card is suddenly used without your authorization, you will not be held responsible, provided you report the situation to your bank. With debit cards, security can be more of an issue – as a would-be thief can potentially drain all of the money from your bank account.
If you become the victim of debit card fraud, you will have to dispute any unauthorized debits and your bank account funds can be restricted for the amount in question while it takes to resolve the dispute.
You must report unauthorized debits within two business days, otherwise you could be held liable for the first $500 lost – even though you’ve been a victim of debit card fraud. Debit cards also rarely offer the quality of rewards programs that often come with credit cards.
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How Credit Cards Function
With such a wide variety of credit cards offering so many different features and rewards, it makes sense to conduct some research online to find the best card suited to your needs. Consider how you plan to use the card, whether you plan to carry over balances each month, and the types of rewards in which you may be interested. Be crystal clear as to interest rate charges and fees. After you are approved, the bank will mail the card along documentation related to interest rates and available credit line, factors determined based on your credit score and profile.
After you have activated the card over the phone, it will be ready for use. It is impossible to overemphasize the importance of being prudent with your credit cards, reserving them for emergencies and special situations only. Never exceed your credit limit, as this can result in higher interest rates and fees while causing damage to your credit score. Additionally, always pay your bill on time, as late or non-payment will also result in fees and damage to your credit score.
Review your monthly statement carefully to ensure that there is no fraud. If you do spot an unauthorized charge, call the credit card fraud department immediately and report it. Short of that, pay your bill in a timely manner, and for as close to the full balance as you can afford. This is one reason why it is so important to have a written budget of your monthly income and expenses, as the last thing you want to do is fall into the habit of accumulating revolving credit card debt while paying only the monthly minimum (or close to it) on your cards.
Revolving debt leads to revolving interest expense, a vicious cycle that often keeps people in credit card debt for years while thousands of dollars in interest expense are wasted.
Bad Credit Card Debt Habits to Avoid
We’ve already mentioned the importance of attempting to pay off balances in full each month, and the good news is that roughly half of all credit card holders do just that. But that still leaves the “half-empty” part of the glass to talk about. And if that’s where you find yourself, then make absolutely certain that you make every effort not to engage in the dangerous activity of building high revolving credit card debt balances by paying significantly more than the minimum payment each month, in accordance with your written budget.
Do not get into the habit of taking cash advances off your credit cards, as these usually come with excessively high interest rates. Watch your impulse buys and closely monitor your spending behavior. Never exceed your credit line, and don’t apply for additional cards because you’re close to maxing out your credit line on an existing card.
Bad habits creep up on us over time, by definition, behaviors associated with them are never a one-time event. When you find yourself spending too often on things you truly don’t need, have the courage to acknowledge your bad behavior and the self-discipline to abruptly slap on the brakes. Again, if this is too difficult, get help from a skilled and reputable credit counseling agency.
If You’ve Got a Credit Card Debt Problem, Proactively Solve It
If you’ve fallen into the habit of living beyond your means through a misuse of credit cards, there are a number of steps you can take to remedy the situation. There are two sides to this that you can work on – either earn more, or spend less. For starters, you may not have given much thought to taking on a second, part-time job with flexible evening and weekend hours. Restaurants, retailers and other service businesses are viable candidates for earning extra income in this regard. Next, you must be willing to alter the spending habits that led you into this predicament in the first place. When it comes to spending less, cut out restaurant meals in favor of eating at home more often, stop purchasing high-end clothes, and go easy on expensive sporting events and entertainment. One simple rule to consider living by – if you can’t afford the purchase with your debit card or the cash in your pocket – don’t buy it!
Getting out from under a significant amount of credit card debt requires commitment, sacrifice and thoughtful planning. Be realistic as to the time frame involved, and be willing to commit to a 3- to 5-year course of action. Always pay on time, and pay as much of your balances as your monthly budget will allow. However, if even after your best efforts, you still find yourself burdened by an onerous amount of revolving credit card debt, the best option very well may involve you working alongside a skilled credit counselor from a reputable credit counseling agency who will tailor an appropriate debt management plan specific to your situation.
Credit Card Debt FAQ
How can I rebuild my credit if no one will give me a credit card?
You may want to consider applying for a secured VISA credit card, one in which you deposit money into a savings account and the card is then used for purchases up to the amount of your deposit. This is an excellent way to begin the process of rebuilding your credit.
A credit card account from fifteen years ago is displayed on my credit report. Are accounts supposed to stay on my credit report for this long?
If you look closely at your credit report, you’ll likely find that credit card account activity from more than ten years ago actually reflects a positive item – namely that you paid your bills on time. Negative items – such as missed payments and late fees – will remain for seven years, while bankruptcies and judgments remain for ten years. If you discover negative items on your credit report that extend beyond these time frames, contact the credit reporting agency that issued the report and dispute the error.
What is credit counseling?
Credit Counseling is a wise option for those who need help getting back on track financially. A skilled, certified credit counselor from a reputable agency will conduct an initial 30-45 minute telephone interview related to your income, expenses and debt levels, before making a determination as to what may be the best solution for your specific financial situation. Common solutions including enrolling in a debt management plan, taking out a debt consolidation loan or pursuing debt settlement.
I am recently divorced. Should I take any steps to protect my credit profile?
If you and your former spouse opened any joint credit card accounts or other credit lines – including mortgages and auto loans – then you’ve got to stay on top of these situations. Contact each creditor to determine whether you can convert joint accounts into individual accounts, and make every effort possible to remove your former spouse as an authorized user from any credit card accounts that bear your name.
How much credit card debt is too much?
There isn’t a number to assign to the answer of this question – but rather it is a matter of how you are managing your debt level, the amounts you are paying off each month, and whether you have been using credit cards for extravagances and unnecessary experiences that are truly beyond your means. If you’re paying only the minimum monthly payments, that’s a sign that you’ve got too much credit card debt and insufficient amounts of disposable cash to pay off what is often high interest rate (12-20% or higher) credit card debt. If you’re using one card to pay off another card (exclusive of low-interest rate balance transfer promotions), that’s another sign that you’ve got too much credit card debt. If you’re buying things on credit that you cannot afford to purchase for cash, that’s another sign that you’ve got a bad credit card spending habit in place and have too much credit card debt. Other signs that you have too much credit card debt include when you are denied additional credit when you apply, and when your card(s) “don’t work” at the point of purchase – because the credit lines associated with them are already close to “maxed out.”
What happens to unpaid credit card debt after 7 years?
Unpaid or delinquent credit card debt will fall off a credit report after seven years – but this does not extinguish the debt liability itself. Only the debtor’s particular state statute of limitations as it pertains to credit card debt can restrict the creditor (or collection agency) from pursuing debt collection after a sufficient period of time elapses. However, statute of limitations on credit card debt collection will vary considerably from state to state, the seven year mark is only relevant when it comes to unpaid debt no longer appearing on a credit report. State statutes of limitations related to credit card debt collection are often shorter than seven years (they typically range from three to six years), but are occasionally as long as ten years.
How to consolidate credit card debt without hurting your credit?
Consolidating credit card debt without hurting a credit score is a relatively straightforward process. A debt consolidation loan, such as a personal installment loan – or even a promotional low-interest rate credit card balance transfer – consolidates multiple debts into one single loan, typically resulting in a lower interest rate and monthly payment. Debt consolidation loans streamline the repayment process while simultaneously lowering interest expense and the total amount repaid over time.
What happens if you don't pay credit card debt?
Negative consequences result almost immediately following a missed credit card payment. Late fees, an increase in the required minimum monthly payment, followed by penalty APR after 60 days of missed payments – your interest rate can quickly go as high as 29.9%! Interest expense mounts, things get expensive in a hurry, and your credit card billing department will contact you with increasing frequency via phone, text and email. Your credit score gets impacted negatively as the three major credit bureaus (Experian, Equifax and TransUnion) are notified of your delinquency at the 30, 60, 90, 120 and 180-day hallmarks. After 180 days, your credit card issuer will charge-off your account (write it off as a loss) and sell it to a collections agency, who will begin their own steady pursuit of you and the debt. Meantime, since your debt is now over 180 days delinquent, your credit report will bear the stain for seven years, holding back your credit score further.