Credit card debt is a form of unsecured personal loan. Credit card debt has been exploding in the last decade and many people posses more than one credit cards carrying at the same time increasing amounts of this type of costly debt. Currently, the average consumer has 9 credit cards with $19,000 in available credit. This development was a natural outcome of our modern fast way of spending, consuming and transferring money. Credit cards provide a line of credit to their holders up to a preset maximum amount. Credit cards, as the name suggests, are cards on which one can get credit or borrow. Each use of the credit card increases the credit card debt.
Credit card settlement takes place once a month. Paying each month the minimum amount stated in the credit card monthly statement is the least requirement from the borrower’s side. In different case, late fees and further interest charges add up. Unpaid interest charges are capitalized which means that they add up to the principal amount and generate additional interest cost (also called interest on interest or negative amortization). In order to avoid this vicious circle of credit card debt, the credit card holder should use credit cards diligently and avoid over-spending while paying off at least the minimum required amount if not more than that. Some holders pay the total principal amount in total each month so they avoid paying any interest charge.
Once the monthly credit limits start getting exhausted and monthly payments start getting missed, credit bureaus start lowering the credit card holder’s credit rating. Having a less than optimum credit rating could prevent the holder from receiving further loans of any type. Multiple credit card holders that find themselves under this situation should consider credit card debt consolidation by transferring all credit card balances onto another low-interest credit card or preferably a secured personal loan with minimal interest rate.
The credit card applicant should have a good standing credit history in order to be eligible for credit card debt, even if some credit card institutions have lower credit standards and may accept applicants with bad credit history or with no credit history at all charging however higher fees and interest rates. Shopping around for a credit card is quite necessary for all credit card consumers as it can save money on interest charges and fees and help matching one’s needs with the credit card’s features.