Credit card debt - the leading cause of financial trouble

December 21st, 2009 |

It has been reported by many studies that major cause of the financial troubles is credit cards. This credit card debt is what leads many people to file bankruptcy. According to review conducted, concluded that individuals who filed bankruptcy had some outstanding credit card debt.

Credit card debt is what you had borrowed from tomorrow to pay for today. If you do not pay off the balances every month then it mounts up and leads to bankruptcy.

Why credit card debt leads to bankruptcy? Generally when you use credit card to purchase at shopping mall or grocery store, the cost of the product is not the amount what you had paid to shop with your credit card but interest rate that credit card company charge also adds up. The cost of the product depends on how much interest rate the card issuer charges and how long does you take to pay off the loan.

It start mounting up if you pay only minimum amount every month then the interest is being charged every month which ultimately increases the cost of everything you buy.

In case if you want to lower the credit card cost then you can take the advantage of the cards that offer lower introductory interest rate. An average rate that card issuer charges is 18% but many card companies come up with great offers every day to market their services. Introductory interest rate offer is one among them; usually it is lower when compared to general rates which will last only for six months after that the rate of interest usually jumps to normal rate which is 18%.

Second, many credit card issuers charge with annual or monthly fee to your balance which increase you cost of carrying. For example if you are carrying 6.9% rate credit cards with an annual fee of $50 then it would be equivalent to 12% rate credit card with no annual fee. So one must choose a card that does not charge you with any other fee accept the interest rate.

Third, the other way to reduce the cost of carrying is choose a card that does not charge you for balance transfer. Beware that many card issuers charge balance transfer fees if you are transferring balance from one to other. Choosing a card with no balance transfer fee you can save around 2% of cost of carrying over a year.

Fourth, while using the credit cards you must be aware of the fact that card issuer’s charges different rate of interest on cash advance and purchase. And remember that introductory rate that is offered is applicable only to purchases but not to cash advances.

Under this circumstances if you want to overcome this financial trouble with credit cards and pay off the balance a little planning is required, first thing you must do is calculate the rate of interest you are paying on your credit cards and find the best introductory offers that came to you and choose the one that offers best interest and do balance transfer. This way you can reduce the cost of carrying and pay off the balance in an organised way.

Articles on this site have been acquired from a variety of sources. No content on this site should be considered financial or legal advice.

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