Credit Card Debt- Understanding it and avoiding it

Ruth, a Boston based PR executive, was a shopaholic. Now, after seeing the use of the verb ‘was’, you must have deduced that she is no longer a shopaholic. Well, you are true to a certain extent. Though, Ruth still loves shopping, she does not shop till she drops. She is more prudent with her shopping. You would like to know the reason behind a change in Ruth’s behavior, wouldn’t you?

Ruth used to carry almost 11 credit cards and would use at least 7 to 8 of them for fulfilling her shopping needs. Most of the time, she was not able to repay the amount before the stipulated date and often had huge outstanding amounts. One day, when she was listening to the voicemails, she realized that she owed a huge amount of money to the credit card companies. In other words, Ruth was in a credit card debt.  

We, Americans are soon getting accustomed to using credit cards. We use it at gasoline stations, specialty stores, retail shops etc. However, it is equally true that an increasing number of Americans are falling into a credit card debt trap.

So, what is a credit card debt? It is the outstanding amount that you owe to the credit card issuer. Whenever, you go in for purchases using a credit card, the purchase amount gets accumulated as an outstanding balance. Most credit card companies require you to clear the entire outstanding amount on a monthly basis. If you fail to do so, you will have to pay an interest that ranges anywhere between 13.5% to 21%.  Sometimes the amount keeps on burgeoning and you find yourself stuck with a credit card debt.

Most of us are interested in knowing about the ways to avoid a credit card debt. Whenever, you are applying for a credit card, carefully consider the interest rate levied on the outstanding amount. You should also look out for hidden charges, otherwise you might encounter a situation similar to that of Sam, a copywriter with a Boston based ad agency. He had to pay a hefty sum for ‘over-limit fees’. In addition, Sam also had to pay $ 100 towards the yearly membership fees. When he enquired with the authorities, they stated that the charges have been specified in the contract signed by Sam. He decided to re-read the contract and later discovered that the hidden charges had been mentioned in one of the inner pages and using a font size so small that Sam had to squint in order to read it.

Experts also state that the balances should be paid off every month. Take the case of Gina, a reporter associated with the Boston Globe. Gina often uses a credit card to pay for her purchases. But she would often default on making payments. Two months back, she renewed her acquaintance with Jerry, her batch mate during the sophomore year, who happens to work with a Boston based financial planner. He advised her to clear the outstanding amount and clear the balances every month. Gina followed his advice and within a few months she was able to get out of her credit card debt. Gina now religiously clears all the balances before the end of the month thereby avoiding the 17% interest charged by her credit card issuer.

In the opinion of Jacqueline who works with a Boston based CA firm, one should also look out for the grace period offered by the credit card issuer. This will help you to save a few bucks when it comes to the payment of interest amount. Consider the case of Geoffrey, who works with the Boston City Council. When it came to choosing a credit card, he opted for the one that gave him a grace period of 30 days. Thus, Geoffrey gets 30 days to make the payment before the credit card issuer starts levying interest on his purchases. This not only enabled Geoffrey to plan his purchasing needs but also gave him an ample of time to collect the necessary amount for clearing his outstanding dues. Had Geoffrey opted for a credit card that starts levying interest from the time of purchase, he would have had to pay a hefty amount towards interest.

Experts state that if you are interested in getting yourself out of credit card debt, then you should aim at making payments that are a little more than the minimum amount that is required to be paid. Take the case of Janet, who works at Tesco’s Boston branch. Her credit card debt amounts to  $ 4,000. To clear the same, she has to pay a minimum amount of $ 80 per month. However, Janet pays $120 and hopes to clear the amount within the next two months. Experts state that if you manage to pay an amount that is more than the minimum amount, then you will be saving a couple of bucks.  

Thus, credit card debt can be managed if you display a little more prudence while using your credit card and ensure that the outstanding balance is cleared as early as possible and preferably on a monthly basis.

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