The debt situation in USA is particularly grim. According to a study an average American owes about $10,000 in debt and that too at a whopping 14% interest rate. What are the most important things that lead a person to credit card debt? In this article we analyse few of them.
1. Overborrowing
Credit cards provide a very easy way to borrow money. Just a swipe and you are done. This ease drives impulsive buying and without any forethought a credit card holder goes on and on making purchases with his credit card, he doesn't ever worry that this credit card money is a debt and has to be repaid with interest.
2. Paying just the monthly minimum
Every credit card statement comes with a minimum payment amount mentioned in it. This is generally a percentage of the outstanding balance on the credit card subject to certain conditions. This is the minimum amount to be paid to the credit card company every month. The sad part is that people take it as the only thing to be done and continue with just the monthly minimum. If you are just paying the monthly minimums on your credit cards each month, a debt of $5000 will take you more than 30 years to repay and in this process you will have paid the credit card an interest of more than $5000. And if your credit card debt is $10,000 and you just pay the monthly minimum chances are good that you will never be able to repay your debt in a lifetime.
3. Multiple credit cards and repayment defaults
Average American household carries around 5 credit cards, which is more than their regular needs. What happens is that with multiple credit cards they falter on repayments and are slapped with a late payment fees, high interest rates and negative remarks on their credit history. This makes getting further credit very costly. To make the matter worse, some people get new credit cards at exorbitant interest rates to repay their existing credit card debt, and are seriously caught in the debt trap.
Credit card debt is growing at an alarming rate, the situation at the savings front is very grim and a crisis like the great depression is looming on American society.
