What is the Complete Meaning of Credit Card Debt ?

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A problem called Credit Card Debt

credit card debt is money a person owes for purchases made by credit.

These cards are no more a luxury, they are almost a necessity. In fact, a lot of people possess more than one card. So, the credit card industry is growing by leaps and bounds. However, this industry and credit card holders are posed with a big problem called ‘Credit Card Debt’.

Your total credit card debt is the total amount you owe the financier. You must settle your debt on a monthly basis. So, you receive a monthly statement or your credit card bill which shows your total debt. Pay off your debt by the full payment due before the date failing will avoid incurring late fees and interest charges.

Additionally, you can make a credit card minimum payment at any time, in which case you won’t incur a late fee but simply want to pay the interest on your credit card debt. If you do not pay off your credit card debt fully, you are also subject to interest charges. Your credit card debt keeps increasing, more so because interest rates are generally higher than interest rates on other types of loans.

Further, the interest charges add to your card debt each month to form the new balance or the new credit card debt amount. If you continue making partial payments (or no payments) the interest charges are calculated afresh on the new debt. So you end up paying interest on the last month’s interest too.

Thus your credit card debt accumulates rapidly and soon you find that what was once a relatively small credit card debt has ballooned into a big amount that you find almost impossible to pay. Moreover, if you don’t still control your spending habits, your credit card debt rises even faster. This is how the vicious circle of credit card debt works.

Credit Card Debt Trends

The debt that the average holder held also increased during this period. In Q1 2022, the average in the U.S. had $5,769 in credit card debt — about 3% more than Q1 2021’s $5,611 average. During this same period, Americans opened 31 million more credit card accounts

What will happen if you did not pay your credit debt?

Missing payments, getting your account suspended, and receiving a demand notice—all these will reflect on your credit score, and it sounds just as bad as it reads. Your credit score shows how financially responsible you are, so it won’t be easy to apply for other loans when you have poor standing.

What happens to unpaid credit card debt?

Most creditors will sell your debt to a third-party collection agency. These agencies often pursue the harshest possible legal actions, which vary from state to state. In some states, you can be sued. In others, a lien can be placed on your bank account.

Most negative items should automatically fall off your credit reports seven years from the date of your first missed payment, at which point your credit scores may start rising. But if you are otherwise using credit responsibly, your score may rebound to its starting point within three months to six years.

The bottom line: Credit card debt is considered “bad” debt because of its high-interest rates and low minimum payments, and the fact that it isn’t used to buy appreciating assets. Use it for the rewards and other benefits, but pay the balance in full each month. Get American credit consumer counseling if you may need any help.

How to consolidate credit cards’ debt balance?

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