A Guide to Credit Card Debt

Many consumers reach for credit cards to help meet expenses and feed various desires, such as taking a vacation or buying new furniture. Understanding credit card debt is a must. Responsible consumers are able to evaluate credit cards, manage the debt associated with using them and handle any negative repercussions stemming from credit card mismanagement.

Credit Card Types

As of December 2010, the total amount of credit card debt held by Americans totaled $800.5 billion, according to the Federal Reserve. This total represents several different types of credit cards. Store credit cards, secured credit cards or unsecured general credit cards represent just a few of options available. Major retailers offer store credit cards for use only with that retailer. Secured credit cards require a security deposit and are typically offered to those with poor or no credit. Unsecured general credit cards represent the most common credit card available to consumers. Consumers can use these unsecured cards at any retailer or merchant that accepts credit cards.

Offers

Credit cards offer a convenient way to purchase goods and services, online and in person. Understanding how the use of credit cards can impact your financial future begins with understanding how credit card debt accumulates. Each credit card provides access to credit under different terms. The fees charged by credit card companies, in exchange for offering you credit, can include interest, transaction fees and other charges. Read the details of your credit card contract carefully to fully understand the cost of borrowing and how it can impact your credit card debt. Understand the impact of carrying a balance, and how your credit card company computes interest on all purchases. Investigate a grace period for purchase. Grace periods allow you a specified amount of time to pay off a purchase in full before the credit card company will charge you interest.

Handling Credit

When used appropriately, credit can help individuals and families build a positive credit history. Establishing a positive credit history can open up additional opportunities and better interest rates on larger purchases, such as homes and automobiles. Paying off the balance in full each month or at least paying the minimum on time each month, demonstrates financial responsibility. Paying late, going over your available balance and carrying too much debt in relation to your income, often referred to as your debt-to-income ratio, can all negatively impact your credit score and leave detrimental marks on your credit report.

Getting Help

Seek help if credit card debt becomes overwhelming. Talk with a qualified credit counselor who can help develop a plan to pay down the credit card debt. If interest rates go up on one credit card, consider moving the balance to a credit card with a lower interest rate. Managing credit card debt in a proactive manner can keep you out of the bankruptcy line and on the path to a secure financial future.