Risk of Credit Card Debt

The average family with revolving credit held about $16,000 in credit card debt during 2009 across 3.5 accounts, according to CreditCards.com. The typical account had an annual percent rate of 14.31 percent as of March 2010. Although credit cards can act as a stopgap in case of emergencies such as job loss or medical problems, they can keep you in debt for years, even on small purchases.

Function

Credit cards usually carry much higher interest rates than other lines of credit, such as a mortgage. In addition, credit card companies would rather you pay only the minimum so you rack up as much in finance charges as possible. For example, paying off a $5,000 balance over 10 years at 16 percent interest would mean you pay $5,080 (more than the principal) in interest charges alone, according to The Motley Fool.

Considerations

It can become seductive to put small charges, such as lunches and movie tickets, on your credit card instead of using cash, according to CNN Money. However, this can entice you to go over budget on food and entertainment--you can easily rack up thousands in debt with small charges.

Effects

If you fall behind on your credit card payments, your credit score will suffer. When you credit score starts to dive, lenders will charge a higher interest to account for the extra risk.

An employer that runs a credit check could see a low score as a potentially negative character trait. Credit card debt can also cause stress, especially for college students not well versed in managing credit.

Default

If you fail to pay off even the minimum balance for a certain amount of time--usually 180 days--you go into default. At this point, the credit card company does not believe you have the ability to repay your debt. However, the company will still add late charges and fees to your account and go after you court--with potential judgments such as garnishments and property liens, according to Bills.com.

Tips

Try not to use your credit card for everyday purchases, but for important ones that you can pay off in full before your grace period ends, according to Motley Fool. Consider paying off credit card bills before your mortgage--mortgages usually have much lower interest rates. If you hold a large balance, try to negotiate with your credit card company for a lower rate, or threaten to transfer the balance to another lender.