When you start using a credit card, you’re not necessarily creating financial problems for yourself. Many people use their credit cards every month, running most of their purchases through these cards. Things like mortgages often can’t be paid on a credit card, but almost everything else can.
As long as you are only charging an amount that you can afford to pay off at the end of the month, this is often not a problem. In fact, you may get rewards on the credit card that make it beneficial to do this. So why do people often struggle with debt on credit cards, and how do they get so far out of control?
Considering the interest rate
The thing to think about is that most credit cards have a very high interest rate – with an average of around 19%. If you pay off the card at the end of the month, you don’t pay anything toward this interest. You may also have a card without an annual fee. So using the card becomes essentially free – as long as you pay it off.
If you do not pay it off by the end of the month, you’re then charged interest on the balance that remains. This is why credit cards often drag people into a level of debt that they can’t afford. If they’re not quite able to pay off the entire balance at the end of the month, then a major fee gets added to that balance. This just increases the odds that they won’t be able to pay again at the end of the next month, and the entire cycle begins again.
Once this starts to happen, it can be very difficult to break the cycle. Make sure you’ve considered bankruptcy and all the other financial options that you may have.