The myriad dangers of debt are often overlooked, and the short-term excitement associated with the many things that can be purchased with the card often clouds a consumer's judgment. The dangers of over extension and damage to one's credit can be avoided through the exercise of responsibility and restraint. Without these characteristics, solving the problems caused by excessive credit card debt is difficult and carries its own set of negative results.
How It Happens
Revolving debt poses many potential dangers. Simply having access to a large line of credit is inadvisable for people who are inexperienced with money management or do not fully understand the nature of credit card debt . Card issuers have a vested interest in seeing card holders incur this debt because the long-term repayment represents a constant revenue stream. The accumulation of debt often happens slowly but can eventually lead to financial ruin.
In modern society many functions rely on the use of credit cards, so owning a card is almost a necessity. It is also much safer to carry a card that can be easily replaced than to carry cash. Therefore, deciding to use no credit card at all is a difficult proposition and carries with it several major drawbacks. Instead it is better to understand credit and avoid problems by taking personal responsibility and avoiding debt altogether.
Consumers can take some simple steps to avoid many of the dangers of debt that are naturally associated with credit cards. Instead of using a credit card, consumers should use a debit card whenever possible and use credit only when absolutely necessary. Requesting lower credit limits and obtaining only cards that require a monthly payoff are simple yet powerful steps consumers can take. Consumers who avail themselves of these steps eliminate many of the dangers posed by credit cards altogether.
Consumers who are caught up in revolving debt know firsthand of the damage that can result. Calls and letters from creditors are only part of the problem. Each month payments are not made in accordance with the credit card agreement causes damage to a consumer's credit. In addition, finance charges, late charges and over-limit charges combine to actually increase the size of the debt each month. The impact of poorly managed credit card debt results in lower credit scores and other more serious credit problems.
Steps can be taken to consolidate debts with home equity loans, but such alternatives are not always available. Dealing with significant credit card debt often requires assistance from another individual or group. There are a number of debt counseling services available that can help get consumers back on track. In worst-case scenarios consumers can attempt to find relief through bankruptcy protection. Unfortunately, each of these approaches has a potentially negative impact, with bankruptcy being the worst. Lenders can view the payment history of any loan to see if payments have been missed or modified, so whatever steps you take will be a matter of record. Such credit report data may cause lenders to require additional collateral, impose higher interest rates to offset the perceived risk, or refuse to grant the loan application.
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