The Dangers of Credit Card Debt
With societal pressures to keep up with the Jones’, it’s easy to adopt the “have it now and worry about it later” mentality, which can cause overzealous credit card swiping. Before you get too swipe-happy with your plastic, it’s important to understand the dangers of credit card debt so you don’t dig yourself into a financial hole that will negatively affect many aspects of your life.
Unlike a debit card, a credit cart won’t alert you when you’ve spent more than you can afford. Many people have difficulty sticking to a budget and this combined with the ability to borrow money on a credit card makes it easy for your debts to become a real burden. Studies have shown that people are more inclined to overcharge on a credit card because there is less emotional attachment to the money being spent. In other words, don’t view your credit card as Monopoly money. It can be easy to rely on your credit cards to maintain a comfortable lifestyle; however, before you know it, you can max out multiple credit cards and be left with unfortunate consequences.
Unfortunately, it’s easy for debt to snowball out of control. If you don’t pay off your credit card balance in full, you will be slammed with high interest rates. Each month you avoid paying off your credit cards, your debt will begin to grow faster than your income. Depending on your level of debt, it can be nearly impossible to save money, which means having no reserves for emergencies, necessary expenditures, and ultimately retirement.
Credit card debt can have detrimental effects on your credit score. Your credit score impacts many aspects of your life including obtaining loans, getting insured, and buying a home. If you miss even a few payments, this will damage your score. Make sure to keep an eye on your credit report to catch potential errors.
Lastly, the stress felt from debt can have serious physical, mental, and emotional effects. It’s possible you could feel trapped, which can cause health problems and tensions in relationships.
HOW TO GET OUT OF IT
Know Where You Stand
Before embarking on your journey to a debt-free life, you need to assess your spending habits to understand your current financial situation. Look back at the past year’s credit card statements and track where you spent your money. This process can be the foundation for creating your new budget. To help you stick to your budget, try to use cash instead of your cards — you’ll be less inclined to spend if you see the cash physically leaving your pocket.
Pay off your card with the highest interest rate first to try to avoid debt’s snowball effect. Once you’ve paid off the first card, tackle your next card with the money you would have spent on the first card along with your regular payment—this is a sure way to expedite the process.
Start to Save
Although credit card debt can make it nearly impossible to save, as you make payments to your credit cards also deposit money into your savings account. Even if it’s just $10 a week, this will get you on track to financial freedom.