Credit Card Debt: One of your worst enemies

Credit cards have been a lifesaver for all of us - well at least for me. While they help us cover expenses for what we require, tracking credit card debt and repayments can often be a daunting task. A lot of us make the grave mistake of not properly planning out the repayments, or settlement of the credit card debt. This in return, can have an extremely detrimental impact on an individual. A lot of us consider credit card debt to be a part of normal routine without realizing how lethal it can get if it is not managed properly. Here’s why credit card debt can be your worst enemy:

• It comes with a spiking high interest: Credit card debt, if not paid in time, concurs an exponentially high interest rate. Paying off this particular rate of interest is absurd, because you can get a better deal elsewhere. Therefore, it just piles up your accruals, and it has a trailing impact on future cash flows.
• Adverse Impact on Credit Rating: This is perhaps the most detrimental impact of credit card debts. In the case where credit card debt is prolonged, the damage to the credit rating is irrecoverable. It might hamper your chances to enter into lease arrangements in the future. This is a risk you really don’t want to take because more often than not, the impact on credit rating is long-term, and it will take you quite a while to fix this.

• Collateral Damage: Usually when you sign up for a credit card, the bank issuing the credit card has the right to take over your assets in the case where the debt is unpaid. This might cause severe financial loss, in addition to a mental trauma. Credit card debt holds unlimited liability. Therefore, the bank might force you to sell off your personal assets (like your car, or even worse, your property) to settle the amount. This is really not a risk you should be willing to take.
• No Realizable Asset Creation: Unlike other forms of debt, like mortgages, or business debt, credit card debt does not usually help you in building an asset of any sort. Since this is mainly used for operational and daily expenses, it does not render any good in the long term. Therefore, if prolonged, you might find yourself paying a much higher interest, hampered credit rating, and no realizable asset creation.

Therefore, it can be seen that credit card debt should be avoided to an utmost extent. As a matter of fact, the trailing impact of piling on credit card debt is quite damaging, both financially as well as mentally for the debt holder. This really does not imply that credit cards are all bad and should not be relied upon. In fact, a better strategy for all credit card holders is to ensure that they are able to plan and strategize their expenses. Aligning income with expenses, and following a budget is the best protocol, so that you are able to avoid the situation where you find yourself at arms with piled up credit card debt.