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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.
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