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Credit Card Debt: A Guide

Americans now incur more credit card debt than they ever have before. In fact, Americans now incur all foms of debt at record rates. It is important to distinguish between kinds of debt. There is debt which can prove useful and lead to prosperity and there is debt which is ususally detrimental to one's financial health.

Credit card debt in particular can be crippling and is an example of debt detrimental to your financial future. Credit card companies usually allow you to pay a fraction of your outstanding bill as a minimum amount every month. However, interest on any outstanding balance which is carried over past its initial grace period accrues. Paying only the minimum amount therefore increases your credit card debt burden at the astronomical rates inherent in most credit card agreements.

One must not be deceived by high credit limits on certain types of credit cards. If not exploited wisely, higher limits can tempt you into getting into even deeper credit card debt and digging a hole you will have great difficulty climbing out of. You are much better off paying your outstanding bill in full every month and reigning in your spending.

As a general rule one must never use credit cards to incur detrimental debt and have to pay interest on it. Examples of this kind of debt are that used to purchase consumer items such as food, entertainment, clothing, etc. These are not items which retain their value. They are not investments which increase in value to offset the credit card debt incurred.

Examples of useful kinds of debt include loans for education, investment and purchases of real estate. Credit cards are not the ideal way to get this sort of credit. Many people are tempted by the possibility of transferring their debt balances to a different credit card account with a lower interest rate. This sounds good in theory but can be very difficult to achieve in practice. Credit institutions run credit checks on consumers before offerring accounts. A large unpaid balance on another credit card is bound to show up on such a check. Credit card companies are unlikely to desire such a customer for an account. Certainly not at an interest rate overly favorable to that consumer, considering that such a consumer is a high credit risk. If you have undisciplined spending habits, you should actually consider reducing your credit limit rather than increasing it.

Although most banking institutions charge a transaction fee on them, debit cards can be a way of restoring some discipline to your spending habits. Keep a debit card and consider using these for certain items to make sure that the item is payed in full directly out of your bank account. Debit cards are generally accepted wherever credit cards are accepted. For more on debit cards, see our article Debit Cards: More Notes.

For those already in deep credit card debt, there is help. Credit card debt consolidation offers are now very common and several such companies are online. There is a distinction between debt consolidation services and debt consolidation loans. With the former, the company acts as an intermediary between you and your creditors, helping you to create a monthly payment plan to eliminate your debts. The latter involves a loan for which you must provide equity, usually your home and is a much riskier proposition. Credit card debt services are sometimes funded by issuing banks . This is because it makes sense for the banks to maintain services which help them retrieve -at least- some portion of debts owed to them by consumers.

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