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Credit card debt occurs when a consumer purchases items on his or her credit card. This debt is generally not a concern if it is paid off at the end of the month. When the debt accumulates, however, the credit card company charges interest on the debt, late penalties (generally from $10 to $40) and reports the late payment to credit rating agencies.
[edit] Getting Out of Credit Card Debt
- If you can move balances on cards with higher rates to cards with lower interest rates
- Except for the credit card with the lowest interest rate, cut all of your credit cards in half so you stop spending money you don't have
- Distinguish between bad debt and ok debt:
- Pay off any debt with an interest rate greater than 10% first
- Use your savings to pay down debt. It makes no sense to earn 1 to 3% interest on your savings account while paying 12 or 15 or 18% interest on credit cards.
- Line up your credit card bills and pay monthly minimums on all bills PLUS an additional chuck to the bill from the card with the highest interest rate. This is the first bill you will need to pay off!
- Repeat this process monthly until all of your debt is paid off
- Use a credit card calculator[2] to help determine how many months it will take for you to pay off your balance.
[edit] Using Credit Cards Responsibly
If you need to buy on credit, at least do it with your eyes wide open. If you're already in debt, use these tips to get out and get ahead:
- Pay the entire balance each month. If you cannot afford to do so, consider spending less money.
- Shop around for cards with low interest rates, but beware of come-ons that offer a low introductory rate and then take a big jump. The Internet makes choosing a credit card easy, but be sure to read ALL the fine print.
[edit] Americans in Credit Card Debt
In 2005, there were 164 million credit card holders who have approximately 1.2 billion cards - an average of nearly nine credit cards issued per credit card holder. [3] In addition, Americans charged approximately $2,052 billion dollars to their credit cards in 2005 - that's just over $12,500 in charges each year per cardholder.
Americans carried approximately 832 billion dollars in credit card debt, which is approximately $5,000 in credit card debt per cardholder.
[edit] Resources
- ↑ 2006-2008 Credit Card Stats, CreditCards.com
- ↑ Free Credit Card Calculator, Bankrate.com
- ↑ Money-Zine, 2007
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