Most Americans use credit cards. In fact, credit card debt recently broke $1 trillion and reached record levels in the United States. Part of this is simply because there are more people every year and the value of the dollar is declining. But it also shows just how common credit cards are and how much people rely on them.
When used properly, credit cards can be beneficial. They help you build up your credit score, and they make it easier to make online purchases. You may also get rewards points or other benefits from your credit card, such as air miles. But there is one serious risk that goes along with all of those potential benefits.
The interest rates
What you must remember is that credit cards have high interest rates. Recently, they have averaged around 28%.
If you pay off the full balance of the card at the end of the month, you likely do not have to pay any interest. This makes people think that a credit card is “free.”
But as soon as you miss a payment or don’t pay off the entire balance, the interest rate is applied to that balance. You would have to pay an additional $28 for every $100 that remains on the card. People who are simply making the minimum payments are often not paying enough to reduce their debt. Instead, the high interest rates mean that the debt goes up every single month, even though they continue to send in those minimum payments.
This is one of the problems with credit cards that can sometimes lead people to consider bankruptcy. If you find yourself in this position, take the time to look into your legal options.