U.S. Credit Card Debt Exceeds $1 Trillion for the First Time in History
The average American consumer carries a credit card balance of approximately $6,000. That is a large sum of credit card debt considering that credit card interest rates are usually higher than other types of consumer debt, such as personal loans, car loans, and mortgages.
This daunting credit card debt statistics has become even more concerning as the Federal Reserve announced that credit card debt in the U.S. has surpassed the $1 trillion mark for the first time ever.
As a responsible consumer, it is crucial to have a clear understanding of how credit card debt works, the pros and cons of using credit cards, and strategies to manage credit card debt. Now, let’s go ahead and unpack the elephant in the room and provide you with useful insights on how to handle credit card debt.
What Is Credit Card Debt and How Does It Work?
Credit card debt is any sum of money owed to a credit card issuer after making purchases with the credit card. This can include the principal amount borrowed plus interest and any other charges levied by the issuer. Every time you use your credit card, you are borrowing money from the credit issuer, and you must pay back that amount with interest charged on top.
Many people carry a balance on their credit cards. This means they owe part or all of the amount borrowed plus interest. It is imperative to understand credit card debt and how it works to make informed spending decisions.
Pros and Cons of Using Credit Cards
Credit cards can be an excellent tool for managing your finances, but they can also have their downsides. One significant advantage of using credit cards is that they offer rewards, cash-back programs, and other perks. Credit cards help protect you from fraud and can serve as a link between you and a retailer to solve disputes.
However, the disadvantages of using credit cards are that any unpaid balances accrue interest. Something that can lead to a significant amount of debt if left unattended. It is worth noting that credit cards also have numerous fees, such as balance transfer fees, late payment fees, and cash advances, among others.
Strategies to Manage Credit Card Debt
Suppose you find yourself swimming in credit card debt and struggling to make payments. In that case, some strategies can help you build up an emergency fund, pay down your balances, and reduce your debt-to-income ratio.
So, one proven strategy is the snowball method, where you start by paying off the smallest balance. Thus, allowing you to gain momentum, and eventually pay off the larger debt amounts.
Another technique that can help you pay down your credit card debt is prioritizing your purchases and making payments above the minimum amount due. Thus, it is essential to have a plan and use financial tools effectively to manage your credit card debt.
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