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Credit card debt and where we get it
Americans have staggering amounts of credit card debt
Studies show that Americans have an astonishing amount of credit card debt, and that amount has doubled in the last ten years. How does that happen? Where does all of that debt come from? The answer may be surprising - a lot of the debt comes from the debt itself.
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Credit card companies encourage debt and their terms often make it worse
The average American household now carries nearly twenty credit and debit cards, where a generation or two ago, they might have had only two or three. The increase in the number of cards has led to a record amount of credit card debt - the average household has nearly ten thousand dollars in such obligations. How did that happen? Where did these debts come from?
There are several reasons for why we owe more than ever before:
- Easy credit - It used to be hard to get a card, especially if you were young and didn’t have a good credit history. Not any more. Lenders aggressively pursue college students and try to get them to start spending with plastic as soon as possible. The average student now has some $3000 in debt when they graduate from college. That’s right - most of them owe several thousand dollars before they even have a job!
- Higher limits - If you make your payments regularly, companies will raise your limits. It’s not unusual to have a $25,000 limit on a Visa card. Who needs those kinds of limits? Consumers see that they are “allowed” to spend that much, so they do. They often forget that spending that money includes an obligation to repay it.
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- Interest rate increases - If you fail to pay on time, you could see your interest rate increase. Few consumers actually shop around to find the best deals, so they often start with cards that have rates in the 20% range. If you pay late, that rate could increase to 30% overnight. Worse - If you pay late on a different card, you could see your rate rise just the same. That’s the “universal default clause” at work. Pay anyone late, and you could see your interest rate rise.
- Increased late fees - Late fees now average $39. If you pay late, your rate rises and you get a late fee. These are added to your account and they increase your debt without you even receiving anything for it.
- Internet shopping - The Internet has made it necessary to buy things with credit cards that you used to be able to buy at your local store with cash or a check. Now you just click, add a credit card number and it comes to your door. That’s great, but if you get careless, you will find the bills adding up in a hurry.
- Low minimum payments - Historically, minimum payments have been low. The credit card companies like the 20% or 30% interest, so they have had little incentive to make you pay the balance. That has changed, as the law now requires that the minimum payments cover at least part of the balance.
Thanks to technology, corporate greed, and carelessness, it’s easier than ever to get into trouble with credit cards. Millions of Americans have done just that, and a record number of bankruptcy filings in the last year have demonstrated just how well that is working out. Use your plastic wisely.
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