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Credit card debt can be crushing
Recent changes in bankruptcy law, credit card payment rules and interest rates makes this a bad time to have a lot of credit card debt. Here’s what you need to know.
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Credit card debt can quickly ruin you and solutions are harder to come by
The .average American household now carries nearly $10,000 in credit card debt among the nineteen or so debit and credit cards each family owns. The savings rate among Americans is the lowest in history and we’re not even paying down the mortgages on our homes anymore. We’re spending money on stuff and we’re spending borrowed money on stuff. And then we’re not even paying for the stuff, at that. We’re putting it on credit cards and letting the balances grow, all while paying interest rates that average nearly 20% per year.
What a mess!. So what sorts of problems do cardholders face in the current market?
- Minimum payments are going up. The government has urged card issuing banks to raise the minimum payment each month so it covers that month’s interest as well as part of the principal. This has had the effect of doubling the minimum credit card payments that consumers have to pay each month. In the long run, it’s beneficial to consumers, who won’t have to pay the outlandish interest for nearly as long as they would have under the old system. But for many people who are carrying high balances, the increased payments could be a burden. If you owe the average $10,000, your monthly payments will go from about $200 to about $400.
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- Interest rates are rising. This applies to all sorts of lending. Interest rates are slowly creeping upwards. It’s bad enough to owe a lot of money, but if the interest rate goes up, then so does your debt.
- Late fees are increasing. The late fee business is a profitable one, and late fees are often tied to your outstanding balance. It could be as little as $15, or as much as $39, depending on how much you owe. Watch out for the cards that promise no late fees; they still expect you to pay on time or they will raise your interest rate to as much as 30 percent!
- Bankruptcy laws have tightened. For those people who just can’t get out of debt, the bankruptcy solution has just gotten harder. New laws that recently went into effect make it more difficult, more expensive and more time consuming to declare bankruptcy and have your debts wiped out by the courts. If you’re debt trouble now, you’ll have to pay some of it back in addition to going through mandatory credit counseling.
All in all, this isn’t a good time to be running up credit card debt. True, everyone seems to be doing it, but it’s an expensive way to live and one that’s best avoided. Pay down your balance now or you’ll be paying a lot more later.
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