Credit Card Debt

Reports suggest that credit card debt has contributed to 80% of the rise in personal bankruptcy filings. The credit card issuers have also been held responsible for creating the financial mess. Just like subprime mortgage crisis, student debt relief, credit card debt is the next financial disaster that has seeped into the economy. A couple of years ago, mortgage defaults contributed to the increasing number of bankruptcy filings. As per a federal data that was released, personal bankruptcy filings increased by 22% since last year (2008).

Don’t ignore facts and new payment policies

Experts are of the opinion that the main reason why consumers have defaulted is change in the policy of credit card payments. We are currently reeling under an economic slowdown. It has not only affected the consumers or the borrowers, but all market participants have been equally subjected to the grueling financial crisis. In order to compensate for the losses, there are several credit card issuers who have restructured their monthly payment policies without notifying the consumers.

A survey conducted indicates that even the credit cardholders who have been regular with payments witnessed piling credit card debt as they failed to understand why the credit card issuers had increased the interest rate manifold without communicating the same.

It has also been noticed that when credit cardholders accept credit cards, they sign the terms and conditions and in majority of the cases, they fail to realize what they have actually accepted. It eventually leads to rising credit card debt. The scenario has changed over the years.

A couple of years ago, if you had credit card bill and you were paying the minimum monthly payment, you could get out of debt within a span of 5 to 6 years. Under prevailing circumstances, the payment policy is such that you pay more for the interest rate and less for the principal amount. In this way, the total time taken to clear off credit card debt is extended. And by the time you actually become debt free, you will have paid more than the amount you had borrowed. Another aspect that consumers fail to realize is that when you use plastic money, sooner or later you have to repay that amount. Often it is seen that in an attempt to clear off one debt, you tend to take another and so on. The scenario is like taking credit from Harry to pay off Peter. It leads to a vicious cycle of debt and you reach a point when bankruptcy remains as the only alternative.

It is very important that you read the fine print before you settle for any deal and don’t fall prey to the credit card issuers who try to take advantage of your ignorant nature.
Related resources:
Getting out of debt – A free 200 page ebook by Tony Palmer full of practical advice on debt problems and help with getting out of debt. Read the full text of this debt book online for free.