Credits cards nowadays are a necessity and no longer just a luxury. That is why so many people are going for credit cards. The trust is that a lot of people possess more than one credit card.
The avaricious appetite for credits cards have led to a boom in the industry. However, this has saddled the credit card industry and credit card holders with a major problem called ‘Credit Card Debt’. To understand what ‘credit card debt’ actually means, we need to understand the workflow associated with the use of credit cards as such.
Credit cards are cards on which you can get credit from the issuer i.e. make borrowings or take loans (your credit card debt). This is different from your debit card which is tied to money in your account. Your credit card is representive of the credit account that you hold with the credit card issuer. Whatever payments that you make using your credit card are actually your loans that contribute towards your credit card debt. Your total credit card debt is therefore the total amount you owe your credit card supplier. You must settle your credit card debt on a monthly basis. That is why you receive a monthly statement or your credit card bill which shows your total credit card debt. You must pay off your credit card debt when it comes due or you will incur late fee and interest charges. However, you have an alternative of making a partial (minimum) payment too, in which case you don’t incur late fee but just the interest charges on your credit card debt. If you do not pay off your credit card debt in full, the interest chargestoo get added to it.That is why your credit card debt keeps on increasing, more so because the interest rates on credit card debt are generally higher than the interest rates on other kind of loans/borrowings. In addition, the interest charges add on to your credit card debt each month to form the new balance or the new credit card debt amount. If you should continue making partial payments (or no payments) the interest charges are calculated anew on the new credit card debt. So you end up paying interest on the last month’s interest too.Credit card debt is compounded.
You thus see that your credit card debt which started out small has gotten out of portion and you are unable to pay. In addition, if you are still unable to control your spending habits, your credit card debt rises even faster. One can see how the vicious cycle of credit card debt works.
Prudence and discipline is the key therefore when making credit card payments. Its no free lunch!
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