Credit cards are important financial resources that give people flexibility between paychecks. Having revolving lines of credit can mean that someone is able to absorb unexpected expenses or a sudden drop in income due to injury or illness.
Unfortunately, people often develop high balances on their credit cards after a job loss or a health issue that will prove impossible for them to resolve without assistance. Instead, the balance slowly approaches the limit, and then people pay the minimum amount required to keep the account open and in good standing each month.
Credit card debt often leaves people struggling for years and paying far more than they realize in interest on their purchases. Why is it so hard for people to overcome the outstanding balances on their credit cards?
1. Fees and interest
The main reason that credit card debt is such a major challenge even for those with solid middle-class incomes is that money borrowed from credit card lenders doesn’t come for free. The company may charge an annual fee to use the card, in addition to whatever interest rate they assign, which will typically be in the double digits.
Numerous small mistakes on the part of the borrower will lead to expensive fees on their monthly statement. For example, lenders often assess over-limit fees when people have reached the maximum balance for their accounts. If the payments for the account is late, that will add another substantial fee. Those fees, combined with the monthly interest added to the account, might mean that someone’s balance only ever goes up and never seems to noticeably decrease.
2. An unbalanced budget
In some cases, those who frequently use their credit cards may not have enough income to support their current standard of living. The reason that they can’t bring down the balance on their credit cards is that they continue adding to the balance every month. They have very little spending power and a lot of unpaid debt.
For those who are no longer in control of their debt, bankruptcy can be an ideal solution that allows them to significantly reduced how much they’re required to pay every month. Recognizing that credit card debt can be an inescapable trap may motivate some people to file for bankruptcy with the assistance of a legal professional in order to resolve their unsecured debts for good.