People you owe money to on a credit card must follow the law when they collect the debt. Action can be taken against you to collect the debt but you have the chance to avoid this.
Credit cards are covered by the Consumer Credit Act (CCA). If lenders can’t get you to pay, they may get a county court judgment (CCJ) or hire debt collectors.
Credit card debt can easily spiral out of control if you are not careful with how you use your cards. It’s very easy to swipe for everything, overspend beyond your means, and end up accruing substantial high-interest credit card balances that become difficult to pay off.
Unfortunately, unmanageable credit card debt is a common issue that many American consumers face today According to a 2022 report from Experian, the average credit card balance is $5,221 With interest rates on cards averaging over 20%, those balances can quickly snowball if you are only making minimum payments or charging more while failing to pay down the principal.
So what leads people down the path of excessive, unmanageable credit card debt in the first place? There are several common scenarios that can cause balances to build up beyond one’s ability to repay them easily. Being aware of these warning signs can help you avoid potential pitfalls
Failing to Make More Than Minimum Payments
One of the fastest ways credit card balances balloon out of control is by only making the monthly minimum payment. Credit card companies determine the minimum payment amount often setting it artificially low. This makes it seem manageable in the short-term but causes interest to rapidly accumulate.
For example, let’s say you have a $5,000 balance at 18% APR and are only paying the minimum due each month, which might be around $125. If that’s all you pay, it would take over 6 years to pay off the balance, and you’d end up paying nearly $3,000 in interest charges!
Making minimum payments allows debt to persist and grow. To keep this from happening, always try to pay more than the bare minimum.
Relying on Cards for Everyday Expenses
Using credit cards for regular purchases like groceries and other living expenses is another easy way for balances to creep up over time. While cards offer rewards and convenience, charging everyday costs without paying statements off in full leads to growing debt.
Credit cards should only be used for big purchases that you can pay off quickly. If you need them for basic things, it means you’re probably spending more than you earn. If you use credit cards to pay for your lifestyle, you will soon be in too much debt to handle.
Facing Unexpected Emergencies or Hardships
Sudden financial challenges like medical issues, home repairs, job loss or other unforeseen circumstances can quickly lead to credit card reliance and debt if you do not have adequate emergency savings built up.
When crisis strikes and funds are needed instantly, consumers often turn to credit cards. But if you are unable to pay off the balances promptly once the emergency passes, the high cost of card debt rapidly escalates. Having healthy savings is key to avoiding credit dependence during difficult times.
Overspending and Impulse Purchases
It’s easy to overspend on credit cards when you don’t stick to a budget and give in to impulse buys. This can lead to balances that get harder and harder to pay off. Shopping sprees, eating out too often, or taking out loans to pay for nice things you don’t have the cash for are all bad ways to get into debt.
Keeping careful records of your spending and being selective about the things you buy can help you stop using credit cards too much and keep your balances from getting out of hand. Having a budget also helps you handle your debt.
Taking Cash Advances
While credit cards themselves can be dangerous, taking cash advances is even riskier and a potential path to unmanageable debt. The interest rates on cash advances are usually much higher than normal purchase rates. And you typically start incurring interest immediately with no grace period.
If you need access to cash or extra funds, it’s better to explore alternatives like a personal loan rather than cash advances which make card debt more expensive. The convenience comes at a very high price.
Balance Transfer Fees and Intro APR Offers
Balance transfer promotions and intro 0% APR offers may seem appealing, but they can also lead to escalating card debt if used improperly. While transferring existing balances to a new card with a temporary 0% intro rate or low fee promotional offer can save on interest, you need to have a plan to pay down the balances before regular APRs kick in.
Otherwise, you are just moving debt around without actually reducing what you owe. And balance transfer fees can also add to your total debt load. Manage these offers carefully or avoid them altogether to prevent unmanageable debt.
Using One Card to Pay Off Another
When you take cash advances or transfers from one credit card to make a payment on another card, it creates a dangerous debt cycle that builds up card balances rapidly.
This tactic might provide temporary relief from making a past-due payment but simply shuffles your debt around while incurring more interest and fees in the process. Avoid kiting credit cards to prevent your overall debt load from ballooning to unmanageable levels.
Ignoring Early Warning Signs
Finally, one of the easiest ways to end up with excessive card debt is ignoring early red flags and allowing smaller debts to keep growing. Things like only paying the minimum due, charging luxuries you can’t really afford, using cards for everyday spending, and shuffling debt between cards are all warning signs your debt could easily get out of hand.
Keeping a close eye on your balances and credit usage and taking swift action at the first signs of trouble can help prevent small debts from spiraling into unmanageability. The sooner you address credit card debt, the easier it is to regain control.
Summary
Credit card debt that becomes unmanageable doesn’t happen overnight. It’s often the result of small spending habits and reliance on cards that builds up over time. But left unchecked, it can snowball as high interest charges accumulate and minimum payments only prolong the debt.
The keys are self-awareness, discipline and proactively keeping credit usage in check before it escalates beyond your ability to repay. With mindfulness of what causes debt to swell and diligence in curbing unnecessary spending and credit card reliance, you can avoid the pitfalls that lead to unmanageable debt burdens.
How do I pay off credit card debt?
- Start by understanding your finances: Work out your monthly budget and follow it
- Add a rainy-day fund to your budget
- Set aside an amount to repay your credit cards
- Set up another account for the money you will use to pay your debts
- Stop using your credit card. It is much harder to pay if it keeps growing
- Pay your ‘priority bills’. These include council tax and any fines you might have. Find out which bills you need to pay first
- Get free debt help if you are not sure what to do
What is ‘persistent debt’?
This is when:
- Your payments cover more in interest and charges than your actual credit card balance
- This goes on for 18 months or longer
Your credit card company will contact you if you have a persistent debt. They will ask you to increase your monthly payment or seek advice from an organisation such as ourselves.
Let My Credit Card Debt Go To Collections?
FAQ
What is the main cause of serious credit card debt?
People get into credit card debt when they get medical bills or emergencies that they didn’t expect, or even when they just purchase groceries.
How can debt become unmanageable?
Personal debt can be considered to be unmanageable when the level of required repayments cannot be met through normal income streams. This would usually occur over a sustained period of time, causing overall debt levels to increase to a level beyond which somebody is able to pay.
What might cause a person to have excessive debt?
NewsNation: People can get into debt in a lot of different ways, such as by buying something expensive like a house or car, getting divorced, or not knowing how to handle their money well. One person’s average debt equals more than half of the median American household income.
What is an example of unmanageable debt?
Unmanageable debt is unevenly distributed For example: Those in the lowest income group are three and a half times more likely than the highest earning fifth of the population to have debt worth more than six months of their income (7% compared to 2%).