Credit Card Debt
Credit card debt can be financially crippling if not properly managed. The simplest solution to this is to simply pay the monthly bill in full each month. Often a person will not pay their total balance with full intention of paying it the next month. This can lead to perpetually putting off paying the credit card debt until it is unmanageable. According to the Federal Reserve, the average interest rate for 2005 was just above 12%. Since the percentage credit cards charge on debt is usually very high, credit card debt is not usually a very smart way to be leveraged. On top of this even a small amount of credit card debt can incur a debt fee. Between the high interest rates and the fees credit cards are rarely the preferred form of debt.
Preventing Credit Card Debt
Not having a credit card in the first place is the easiest way to avoid credit card debt. However there are many other ways to almost guarantee avoidance of credit card debt. Many credit cards today allow cardholders to make automatic payments. Usually the cardholder will sign up for this online and as long as they have enough money in their checking account the credit card will be paid in full each month. Another successful way to avoid credit card debt is by using debut cards in place of credit cards. Recently debit cards have been offing rewards similar to credit cards and since they take money directly from checking accounts, there is no debt. However, cardholders have to keep enough cash in their checking accounts or they risk overdrawing their account and paying expensive fees.
Dealing with Credit Card Debt
The best way to deal with credit card debt is by paying it off as soon as possible. Very often cardholders are not able to pay off their credit card debt. A good solution to this problem can be paying off the credit card debt with a different loan. Most banks personal loan rates are lower than credit card rates, so a credit card holder can take out a loan to pay their credit card debt in full and then makes payments based on the bank's lower interest rate. One more risky way to manage credit card debt is through more credit cards. Many credit cards offer very low or no introductory interest rates and people with often transfer their old balances to these new cards. This involves a high amount of risk and making a mistake while juggling between new cards can be costly. Other cards guarantee a very low permanent interest rate on balance transfers. If the full balance can be transferred at this rate it can be very beneficial to the debtor. On the other hand often only a small portion of the balance can be transferred at the low rate and the amount over will be charged a very high percentage.
Credit Card Debt is Best Avoided
Most credit card debt is costly and yields very little benefit. Other debts, such as mortgages or business loans usually charge a fair interest rate and require the debtor to invest the cash in a stable asset. Credit card debt charges unfair interest rates and the merchandise purchased loses the majority of its value as soon as it leaves the store. With all of the alternative methods of purchase, credit cards should not be used by those who are tempted to borrow to pay for unnecessary things.