The alarming rise in credit card debt is causing sleepless nights of a good number of people in USA. Why do we fall into credit card debt trap? Over-borrowing, slack financial discipline, late repayment and not keeping track of credit reports might come as the most important reasons to the average mind. But, do we know the most important factors? This article takes a look at the three biggest factors that drive a person towards credit card debt.
1. Too Many Credit CardsMany believe having too many credit cards in the wallet is an essential sign of prosperity. Some think, the larger the number of credit cards the more money is at their disposal. But, both of these facts are clearly false, and having too many credit cards is the number one factor that drives a person towards credit card debt. The hard fact to remember is that every single penny used from credit card has to be repaid and that too with interest. So, too many credit cards translates into too many credit card debts. With the repayment dates varying with the credit cards the repayment of credit card debt becomes messier and difficult to keep track of. Eventually, credit card debt consolidation comes into picture which consolidates the various debts into one. To avoid credit card debt the first thing to keep in mind is to have only those credit cards which are absolutely essential.
2. Taking Cash AdvancesThe second most important factor that leads to credit card debt is taking cash advance from credit cards. Credit cards are there to make payment for goods and services and should not be used as debit cards. The simple reason that should stop a person from taking cash advances is that credit card companies charge heavy interest rates on cash advances and there is a penalty also to be paid. The high interest rates makes the repayment scenario more tougher. Simply speaking the cash advance using a credit card must be avoided at all costs because it is a very high interest debt. If it is totally unavoidable, try to repay the cash advance with the very next monthly installment. This will save a lot of money on interest rates and help avoid falling into credit card debt trap. 3. Repaying the minimumPeople think that by repaying the monthly minimum they are doing their part towards paying the credit card debt. But, this is simply not the case. By paying only the monthly minimum the credit card debt starts accumulating at a rapid rate. And coupled with high APR this amount can throw a person into debt trap. Those who pay only the monthly minimum land up paying 3-10 times the money they borrowed. The credit card debt can be avoided if the entire amount due is paid with the next billing cycle. This will help establish a good credit history too.
Though there are other factors, like apr, annual fees, balance transfers etc. which should not be overlooked while taking a credit card but keeping a track of these three important factors will help a person stay away from credit card debt.
Duran Mueller an expert author and credit card consultant, provides great American express credit card tips. Read more credit card articles at his credit card website.
