Credit Cards Lead To Debt

Credit cards are so convenient, no need to carry cash or keep track of that checkbook. Low introductory rates, guaranteed approval, cash back, and reward programs. It all sounds very inviting, as it is well meant to be. Unfortunately the price for this convenience is high. Credit card debt in North America is a very serious problem.

As of 2010, over 180 million Americans own approximately 2 billion credit cards and the accumulated debt from all these cards is a staggering $2150 billion a year. As you can see credit cards are a major reason why consumers need to explore some type of debt consolidation service at some time or other in their lives.

The Credit Card Pitfall

While credit cards may seem like a dream come true the fact of the matter is that they are, in the long run, more trouble than they are worth. One distinguished financier has noted that "there is no such thing as responsible credit card use" and in many ways it is true. The internet is rife with credit card horror stories from lenders reducing the credit limit to account closures without so much as a notice. Many banks now charge fees if you don't use the card they issued you and the list goes on and on.

Credit cards fall into two major categories, secured and unsecured. Secured credit is achieved through some type of collateral, your house and car payment are examples of secured credit. In the case of credit cards this means that the holder provides a lump sum that is applied to the card, this becomes the credit card's limit.

The best example of this are loadable credit cards that are so prominent these days. You can use them as you would a normal credit card but once the pre determined spending limit has been reached the card is shut down until a new amount is reloaded. Most merchant cards also work on a set spending limit basis.

The Lure Of Unsecured Credit

Unsecured credit cards are ones that are given on a promise to pay with no type of collateral being held. This trust is the reason their fees and interest rates are so high, they are intended to protect the lender from people who skip out on their payments. These are the cards that are primarily responsible for the current debt crisis. For obvious reasons unsecured cards are normally only awarded to consumers that have a respectable credit history.

Most of these cards work on a revolving line of credit system. Revolving credit means the card holder can borrow a certain amount and continue to borrow against that amount as long as monthly payments are made on the balance. Never, under any circumstances should you take out a second mortgage to pay off unsecured debt. By giving your creditors some collateral you run the risk of losing your house when the worst that could happen otherwise is perhaps some wage garnishment, if that.

Students are very susceptible to credit card debt as they are new to the credit world and unaware of the danger that cards hold. While credit cards can be an excellent way to establish a credit history, so many times it ends up with disastrous results. Many students are enticed with low interest rates only to see them jacked up once the introductory period is over.

This is why the fine print must always be studied and understood before agreeing to any credit card offer. Thousands of grads every year find themselves embarking on their adult lives steeped in debt that will take on average a dozen or so years to pay off.

Finding Your Way Clear

Once you find that you have gotten yourself into a bit of a credit card pickle there are certain techniques that should be incorporated to manage your debt. The most effective of these techniques is to destroy your credit cards, you can save one for emergencies (pizza and beer for the super bowl party is never an emergency) but the rest of them should go in the trash.

Ok, that may help you in the future but what are you going to do now? The first step is to enlist the advice of some type of credit counselor. These individuals are highly qualified in finding the correct debt elimination process that is right for you and your financial situation.

The next step is to set the plan that your counselor developed in to practice whether it be debt consolidation or perhaps settlement. This will entail some lifestyle changes in your spending habits. It's amazing how many people think they can continue with their same routine and expect a different result, it's just not going to happen.

When you make payments, pay more than the minimum, you won't believe how much more quickly you will pay off your debt. This is because you won't be paying nearly as much in interest as you would be just skating by with minimum monthly payments.

Other Options

Some credit card holders try to reduce their debt by taking advantage of a procedure known as balance transfer. With this method the balance of one credit card is transferred to another low or no fee interest rate card that many lenders offer to entice new customers. The catch is that you need to pay off the balance in full before the introductory interest rate skyrockets up to its normal level. This method does work for some people but it is a risky venture because if the interest rate goes up before you dissolve that debt then you are no better off than you were before.

Many consumers have found success with debt consolidation programs. With this method the debtor pays a monthly lump sum to financial gurus who have negotiated with your creditors to pay your debt down bit by bit. Debt consolidators take the heavy work out of debt management for you. They not only negotiate but make payments keeping the debtor in good standing with all the outfits in which the debtor owes money.

Consolidation companies maintain contact with creditors and keep tabs on payments made and balances due. The only responsibility the debtor has is to provide the funds every month. Whatever method you choose it is vitally important to get a handle on your credit card debt now or it could haunt you for literally decades.