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The alarming rise in credit card debt is causing sleepless nights of a good
number of people in USA. Why do we fall into credit card debt trap?
Over-borrowing, slack financial discipline, late repayment and not keeping track
of credit reports might come as the most important reasons to the average mind.
But, do we know the most important factors? This article takes a look at the
three biggest factors that drive a person towards credit card debt.
1. Too Many Credit Cards
Many believe having too many credit cards in the wallet is an essential sign
of prosperity. Some think, the larger the number of credit cards the more money
is at their disposal. But, both of these facts are clearly false, and having too
many credit cards is the number one factor that drives a person towards credit
card debt. The hard fact to remember is that every single penny used from credit
card has to be repaid and that too with interest. So, too many credit cards
translates into too many credit card debts. With the repayment dates varying
with the credit cards the repayment of credit card debt becomes messier and
difficult to keep track of. Eventually, credit card debt consolidation comes
into picture which consolidates the various debts into one. To avoid credit card
debt the first thing to keep in mind is to have only those credit cards which
are absolutely essential.
2. Taking Cash Advances
The second most important factor that leads to credit card debt is taking
cash advance from credit cards. Credit cards are there to make payment for goods
and services and should not be used as debit cards. The simple reason that
should stop a person from taking cash advances is that credit card companies
charge heavy interest rates on cash advances and there is a penalty also to be
paid. The high interest rates makes the repayment scenario more tougher. Simply
speaking the cash advance using a credit card must be avoided at all costs
because it is a very high interest debt. If it is totally unavoidable, try to
repay the cash advance with the very next monthly installment. This will save a
lot of money on interest rates and help avoid falling into credit card debt
trap.
3. Repaying the minimum
People think that by repaying the monthly minimum they are doing their part
towards paying the credit card debt. But, this is simply not the case. By paying
only the monthly minimum the credit card debt starts accumulating at a rapid
rate. And coupled with high APR this amount can throw a person into debt trap.
Those who pay only the monthly minimum land up paying 3-10 times the money they
borrowed. The credit card debt can be avoided if the entire amount due is paid
with the next billing cycle. This will help establish a good credit history too.
Though there are other factors, like apr, annual fees, balance transfers etc.
which should not be overlooked while taking a credit card but keeping a track of
these three important factors will help a person stay away from credit card
debt.
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