Beyond the obvious difficulties of the debt itself, getting into a cycle of debt can cause damage to long-term economic well-being for an individual and it can lock a person into a second-class state of living. Beyond the obvious drain on income, credit card debt carries several other notable dangers. The looming threat of annual percentage rate increases, universal default, continuous stress and worry, and that boogieman in every debtor’s closet – bankruptcy – are all possible dangers faced by those who have fallen into the no-win situation of credit card debt.
Annual Percentage Rate Increases
Annual percentage rate increases are the most common danger to someone with credit card debt. From the date you are issued your credit card to the point where your debt begins gets out of hand, the percentage of interest you pay can change, sometimes dropping, but usually increasing, due to the increasing amount of your monthly minimum payment. As your payments grow, so to does the interest applied to calculating further payments, leading to further increases in said payments. However, this increase in your interest percentage rate is so gradual that you will most likely not notice until your minimum payments have reached the point where you struggle to make them.
Which leads directly to the danger of universal default. Universal default occurs when a credit lender changes the terms of the credit card agreement to its default state due to continuous late payments or other problems related to your credit card debt. This can mean a change in interest rates, minimum payments and the application of various fees beyond the standard late fee, including excessive monthly additions to your normal minimum payment. When this happens, it can become even harder to continue paying off accumulated debt, as it will most likely increase exponentially past the point it was at before the universal default went into play. Once it becomes too hard to pay, once the debt outweighs the debtor’s ability to pay it down, then the threat of bankruptcy becomes very real and very likely.
Credit Card Debt Bankruptcy
Bankruptcy occurs when an individual is unable to pay their debts. Essentially, you’re out of money. Once this happens, in the case of credit card debt, credit card companies are legally obliged to forgive most, if not all of the debt. While this seems like a good deal, bankruptcy is something that few who are forced to declare it ever recover from. The ramifications to future prosperity as well as the effect it will have on your credit rating (which is needed to buy property, get loans, etc.) is not inconsequential. Too, in many cases, credit card lenders will act to prevent this, forgiving fees or charges, or even part of the overall debt in order to keep the money coming in, in some fashion.
The continuous stress of having excessive credit card debt can drive one to lose sleep, raise blood pressure, and in general hurt the debtor psychologically as well as physically. It can prove quite cumbersome to try to continue to pay the mounting debt and always be wondering what is the next step – what will the credit card company do? A person’s heart might race every time they present their credit cards to pay for a purchase. The thought on their mind is – will it clear? Stress can be a very heavy weight to carry.
In short, credit card debt brings with it further dangers than just an imminent decrease in available funds. It can permanently wreck your economic standing and harm future attempts to rebuild your credit rating.