Credit card debt reddit

6 reasons why you should say NO to credit cards

Credits cards are believed to be one's best friend in times of need and crisis. Yes, they also prove to be one sometimes. However, the million-dollar question is: Is this reason good enough to own a credit card?

Credits cards are believed to be one’s best friend in times of need and crisis. Yes, they also prove to be one sometimes. However, the million-dollar question is: Is this reason good enough to own a credit card? You may also argue that there are many other advantages of credit cards, like they give discounts and cash back rewards, interest-free period of 45 to 55 days, and also help you build a credit history. Good! Have you, however, ever realised that if credit cards can help you build your credit history and score, they can also ruin them forever if used recklessly, because of which you won’t be able to take a personal or home loan ever in your life? Are you also aware that crores of people the world over have fallen into a debt trap because of credit cards only, which has not only ruined many homes, but has also forced many to commit suicide?

Why? Because credit cards work on the principle of ‘Spend Now and Pay Later’ – which induces a majority of people to spend more than what they actually earn, sometimes to impress someone and sometimes simply to maintain their ‘social status’! And they realise their folly when it is too late!

You may wonder – What is wrong in spending now and clearing the dues later? May be nothing ‘wrong’, until you realise that while you can pay off your personal loan in months and a few years, it may take even decades to clear your credit card dues if you keep paying only the minimum amount due? According to one rough estimate, if your credit card outstanding balance is Rs 2 lakh and the interest charged is 40%, then it will take about 15 years to clear your dues if you continue paying only the minimum amount due each month. And if you keep delaying this payment just by a few days (on which late charges are levied every month), then you may not be able to clear the dues in your lifetime also!

It is clear, thus, why you should avoid using credit cards as far as possible. Although there may be many reasons to stop using credit cards, here we are taking a look at top 6 reasons why you should say ‘no’ to them:

1. Credit card interest rates are expensive

Credit card interest rates are high, which can make financing your purchases even more over board. “Credit card companies charge interest rates on some cards that more than double that rate and when you tend to borrow money at these double-digit interest rates, it isn’t going to help your situation. If you don’t have the money to pay cash for something in the first place, you probably don’t want to make it even more expensive by adding high interest to the price,” Abhinav Angirish, Founder, www.investonline.in.

2. Credit purchases lead to going over-budget

People tend to spend more money when paying with credit than they would with cash. This is because buying a product just doesn’t seem as big a deal if you just sign a receipt. “Practically if you don’t have to think about paying for that product for a month, this will encourage you to splurge more. If you pay with cash, however, you can physically feel the rupee notes leaving your hand, giving you a better sense of not only how much it truly costs, but also how much money you have left in your now-lighter wallet,” says Angirish.

With hidden charges and prohibitive interest rates, credit cards often push many people deeper into debt, getting out of which becomes difficult after a point. This is no longer a secret!.

If you actually read the terms and conditions when you sign up for a credit card, you’d likely be surprised at how many things you are not aware of regarding using a credit card. The small fine print will reveal that the company can increase at any point the interest rate, fees, penalties with a short notice of up to 2 weeks to the clients.

5. It damages your credit score

Lower credit score determines a lot more than what interest rate you will be paying now. “If you lower your credit rating because of unpaid credit card debt, then you can expect to pay significantly more money in the future, when you opt for an important loan, like a home loan. Also, in some cases you won’t be able to get any loan also. For instance, if you default on your payment or get a credit card settled,” says Angirish.

If you don’t owe anyone money, you won’t have to worry about delayed payment, penalties, fees, interest, credit score etc. This peace of mind is more important than the product itself. Why to lose your peace of mind just for the sake of increasing the business of someone else or buying a thing which you really don’t need?

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Credit card ownership begins as a privilege — the ability to make purchases before providing the funds to pay for the purchases — but can quickly devolve into a web of bills that will eventually entangle your finances.

As of 2012, the average credit card debt for every American household is $15,590. The average debt per person is between $9,111 and $10,235.

Millions of consumers carry credit card debt, and this burden is carried regardless of age, race or credit card company affiliate. Most people aren’t dealing with a single credit card either, but carry an average of three cards. Learning how to manage this debt is a process that can consume your time and emotions.

Taking steps to overcome credit card debt is the only way to return to a place of financial security. For some, these steps must be taken with the assistance of a credit counselor. For others, a diligent effort to develop new habits will be rewarding. For all, the long-term repercussions of credit use will be reflected in credit scores that can help or hinder your financial future.

There are 160 million people in the United States with credit cards, ranging from Visa cards to department store cards and gas cards. Each card has a unique set of terms and sometimes rewards that accompany spending.

When you are approved for a card, you will sign an agreement for a set of terms, including:
  • Interest rate charged on any balances
  • Monthly minimum payments toward the balance
  • Fees for missed or late payments
  • Maximum amount of available credit

Using a credit card responsibly will provide access to capital otherwise not available. This financial asset enables consumers to make purchases before paychecks clear, afford large purchases that would normally be delayed, take out loans, lease vehicles, get approval for car payments, finance a house and act as a factor in the hiring process.

Credit availability is a double-edged sword as it gives consumers spending power – after the work to become a borrower worthy of the risk creditors take—and demands the responsibility to wield credit properly. If credit use is not managed, the resulting debt can be crippling. Many people recognize the gravity of credit card debt only when it seems insurmountable.

How Credit Card Debt Snowballs

Nearly half of credit card holders ages 18 to 59 always pay credit cards in full. However, credit users of all ages report occasionally participating in actions that if continually repeated, can potentially damage credit.

Common credit habits with serious negative repercussions include:
  • Carrying a balance from month to month
  • Paying only the minimum balance
  • Owing fees for late payments
  • Owing fees for exceeding credit line
  • Using the card for a cash advance

Continuing a practice of making more purchases with your credit card, while only paying the minimum payments, will quickly grow your debt.

Emergencies trap people with debt. Sudden expenses come up and credit seems to be the solution. Unfortunately, the solution is only temporary, providing funds to cover one emergence or pay one extra bill, but leaving a hefty debt that is not easy to erase. Over time interest charges build on the owed balance and getting back in control seems impossible.

Analyzing how credit is being used and abused in society involves looking at what types of cards people are using, how different age groups use credit and which cultural demographics are most struggling with debt.

Visa, store cards and Master Card comprise the largest numbers of cardholders. There are 107 million Visa cardholders carrying a total of $369 billion in debt; 96 million store cardholders have $94 billion in debt; and 84 million Master Card holders carry $255 billion in debt. While there are only 37 million American Express cardholders in the U.S., they hold $97 billion in debt.

Consumers age 65 and older have the greatest amount of debt. Credit card debt has also increased from generation to generation, as cardholders ages 28 to 33 have an average of $5,689 more in credit card debt than their parents did.

Student loan debt contributes to the increased credit card debt in this age group because most of their earnings are spent on student loans, leaving them to depend on their credit cards to supplement their income and daily expenses.

Once this generation reaches their 60s, they may face serious obstacles if their debt continues to grow.

The average amount of debt per individual from 2008 to 2012 has significantly decreased across multiple demographics. The African-American population experienced a 17 percent decrease in debt per person, non-Hispanic whites saw a 29.4 percent decrease, and debt among the Hispanic population dropped by 33 percent.

Managing Your Credit Card Debt

Getting out of credit card debt will take time and intentional steps. Setting a goal for when you plan to be debt-free can help you to move into a place of financial security. Set a reasonable date for when you want the money you’ve spent and the interest you’ve accrued to be paid off. Work toward this goal by taking these steps.

What Does My Credit Score Mean?

Part of having a holistic understanding of credit cards requires knowing the value and function of credit reports. The three main credit agencies that put together credit reports are Equifax, Experian and TransUnion. You can request a free report from each of these bureaus every year.

People with scores ranging from 300 to 549 are considered high-risk borrowers. Having these scores makes it difficult to get approval for lines or credit, loans or financing for a house. If lenders do extend you credit, it will likely be at subprime interest rates, which means you will be paying for the risk you pose. This lower score can also be a factor that potential employers will weigh when considering you for a new position.

Around 16 percent of Americans have scores in this range.

People with scores ranging from 550 to 649 are moderately high-risk borrowers. Because these scores still have room for improvement, interest rates will still be high and lines of credit low. Around 20 percent of Americans have scores in this range.

The national average credit score is around 660.

Consumers considered good investments for lenders are those with scores ranging from 650 to 799. Since borrowers with these scores have few flaws in their credit history, only missed payments here and there or a high credit ratio, they are eligible for competitive interest rates.

People with scores in the 800 to 850 range are an excellent investment for lenders. Borrowers in this range can take out a loan, purchase a car or finance a house with ease. They are eligible for the lowest available interest rates. As borrowers utilize the credit they’ve earned, it is important that they continue to maintain good habits, especially as the simple access to large sums of money comes with heightened responsibility.

Should You Pay Off Your Credit Card or Save?

If you use credit cards regularly, you may have experienced that feeling of dread when you see the amount owed on it steadily rising, followed by an interest charge that only gets higher. In an ideal world, we wouldn't be spending more than we can pay off each month, but sometimes that's just not doable, and debt starts racking up.

There are many ways to go about paying off a credit card, but should you be saving up money first, then working on ridding yourself of debt? Reddit and Quora users weigh in on what has worked for them, and you may be surprised at their answers.

  1. Pay debts down in order of interest rate, worry about saving later. "Always pay off the highest interest rate debt first, in that order, while paying the monthly minimums on the rest. Then repeat as you wipe out each debt. Besides saving for an emergency fund and contributing to your 401k to meet the company match, there is no point in saving or investing in anything else since the high interest rates of the credit cards and student loans eat up any gains you could get otherwise." — adle1984
  2. Save a little bit, but pay off your card ASAP. "Save a small amount of money, $500-$1,000, so you have some breathing room. Then pay off those credit cards because any debt you have costs you way more in interest than you will ever get in a savings account. Anything with a return with even half the cost of interest on a credit cards comes with risk." — Craig Shclieve
  3. Pay off cards unless savings pay a higher rate than your interest is costing. If your savings pay a higher rate than what you pay in interest on the debts, then save . . . otherwise pay off." — Dax Balladares
  4. Have an emergency fund while paying card costs. "You want to continue to pay minimum payments on the credit cards and put enough away for a few months worth of bills in case an emergency happens. Then focus on credit cards . . . With credit cards being paid off, you can use the money that was going towards those payments to save. — Dominique Wilson
  5. Sell something that will help you save money, then use the cash you're saving to pay off your credit card. Reddit user pkeane04 suggested selling something that you spend money on regularly — like a car, cable TV, expensive phone bill — and use the money you save from that to pay off the card. That being said, he still advised those in credit card debt to start by paying it off before starting to think about saving.
  6. Pay high interest debt, then save, then invest. "Once the high interest debt is paid off, then worry about building a cash buffer and investing. Point the stream at a savings account until you have enough to go a few months without work. Bad things happen and you need cash on hand to fix them . . . Once you've put out the credit card fires and filled up your savings account, then you can figure out what types of investments make sense to point your cash stream at next." — Eric Scott 13

The main takeaway: pay off debt first, start saving after. The amount of money you will be saving while still paying off cards will be essentially canceled out by the amount you are accruing in interest fees.

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