The Impact of Credit Card Debt

Credit card debt is a problem that can be crippling financially in the short-term and lead to even bigger problems in the future. Because of its high interest rates, credit card debt can take a long time to pay off and make a lasting impact on your credit score as well.

Credit Score

One way that credit card debt can negatively affect you is in your credit score. Carrying a small balance on your credit cards may not necessarily have any effect, but if you max out your card regularly, it can impact your score. You should strive to keep your credit card balances at less than 30 percent of the total credit limit on your card. If the balance is higher than that, the credit bureaus believe that you cannot handle your money effectively. Having a low credit score can make it difficult to obtain credit in the future.

Time Frame

Credit card debt can turn into a long-term problem for many people. When you accumulate debt on your credit cards, the credit card company will only require a minimum payment to be made. If you only make this minimum payment every month, your debt could take many years to pay off. For example, if you had only $1000 in debt and only made the minimum payment on a typical credit card, it could take you over 20 years to pay off. (See References 4)

Interest

Something else to consider with credit card debt is the amount of money that you pay in interest. The actual debt itself may not seem like that much money. When you add in the interest that you pay over the life of the debt, it becomes a much larger figure. Credit card companies regularly charge interest rates that are higher than 10 percent and some charge more than 20 percent. This type of interest could add thousands of dollars to your payments over the years.

Balance Transfers

Credit card debt can lead consumers to try drastic measures. For example, one of the most common techniques is to transfer credit card balances around to different credit cards that have a zero percent introductory rate. This can provide you with a few months of no interest, but it can also increase your problems if you are not careful. Opening a new card just to transfer balances often results in accumulating a balance on the original card as well.

Considerations

There are several solutions that could be used to remedy the problem of credit card debt. Entering a debt management plan is an option that can help you lower your credit card interest rates and get a more affordable payment. With this type of plan, you would make a single payment to a debt management company and then they would make all of your payments for you. This can be beneficial, but you could also do the same thing yourself without having to pay a fee.