Credit Card Debt: How it Starts PDF Print E-mail
Written by Chris Blanchet   
Wednesday, 17 June 2009 11:12
The average American carries balances of $22,100 on 13 different credit cards. If you are like the rest of us, then you also carry credit card debt and it is no fun! As you know, such debt has a tremendous impact on our personal finances, even though the circumstances that led us to this stage are often outside of our control.
by ChrisBlanchet


The average American carries balances of $22,100 on 13 different credit cards. If you are like the rest of us, then you also carry credit card debt and it is no fun! As you know, such debt has a tremendous impact on our personal finances, even though the circumstances that led us to this stage are often outside of our control.

Carrying such a large debt load, we often sit back and wonder how we got into this situation. Truth is, there are four main areas that bring about heavy credit card debt, and although many of them are outside our control, we should certainly recognize the circumstances that led us here. And then we can start effectively repaying the large debt and improving our negatively impacted budget and personal relationships. Finally, once we have this bad karma behind us, we will be able to identify the signs of mounting credit card debt before it gets us into trouble again.

1. Unnecessary expenditures: If you spend more than what you earn, try to recognize the problem. This habit normally takes form when you make unnecessary purchases that exceed your budget, thus damaging your personal finances. However, if you control your expenses by limiting spending on luxury items (such as movie nights, dining) you will surely help your credit card debt. If you can curtail your spending, you may even have enough money left to start repaying the credit card debt. Ultimately, this is what you want.

2. Large unexpected expenses: In instances where our credit card debt grew fast and furious, it is probable that we experienced a series of huge expenses. The big offender? Car and home repairs. And as soon as one repair was completed, another repair popped up. Even though we probably had the intention of repaying such expenses as quickly as possible, we often became complacent with the balances and paying the small "minimum" payment. Now, carrying larger balances we must repay the debt. The simplest way to do so without sacrificing all of our lifestyle is to curtail discretionary spending. The money we save can easily be channeled into repaying our credit card debt.

3. Prolonged Medical Expenses. As one of the most-cited financial reasons for going bankrupt, medical expenses are a special breed as they involve people we care about. In most cases, paying medical and hospital bills is completed conveniently with the help of a credit card. However, this results in larger credit card debt, higher minimum payments, and tougher financial circumstances. Since medical expenses are rarely cheap, we can easily accumulate large balances that lead us to insolvency within a very short period of time (e.g. from one statement to the next).

4. Unplanned loss of income for an extended period of time: Losing our job is never fun, particularly these days. In order to continue feeing our family and maintaining the household, it is common for people to resort to available credit card limits. While this is understandable, we must also do our very best to curtail our lifestyle during such times (research suggests that we do not, however). Eventually, our credit card debt climbs to the point where our lack of income combined with higher minimum payments lead us to a trustee's office. While unemployed, credit card debt can quickly spiral out of control. If bankruptcy becomes our only option, then finding a job will become even more difficult (since most employers obtain a credit history before extending job offers), particularly in a competitive job market.

Our most sensible tactic when dealing with credit card debt is to reduce our expenses. In many cases, this might mean leading a simpler life, such as going without certain luxury items or cutting back on entertainment spending. Of course, there are plenty of other options available and they all work well on their own or in combination with others. Still, this never means sacrificing life altogether; it simply means taking a more active role in repaying our credit card debt. After all, once we repay our high-rate credit cards and lead a debt-free lifestyle, we are better able to weather future financial turbulence and put a healthy savings base in place.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

Chris Blanchet is the author the Personal Finance Textbook Help Fix My Finances, which is also the basis for the Personal Finance Program of the same name. You can visit his blog at How To Repay Debt.com for more tips and advice on how to repay debt.