Understanding Credit Card Debt

Some types of debts support a useful purpose, such as an SME loan for your business in Singapore, a mortgage for your dream home, or a student loan to finance your education. However, some loans can be dangerous and impact your emotional well-being. These loans include credit card debts that result from bad spending habits.

1.9 million Australians have an average credit card debt of more than $3000. It can take them decades to clear this balance, and the principal amount accumulates sky-high interest and penalty charges. According to a study, consumers were charged about $1.5 billion in one year to cover annual fees, late payment charges, and other amounts for credit card use.

When to seek help

If you are spending on a cash basis, you are left with no choice but to stop spending when you run out of money. However, paying through a credit card masks your financial struggle. This is because you don’t feel the same level of pressure you experience when you pay with cash until you lose track of your spending. Here are some possible signs that you need to seek help right now before your debt leads to a severe financial crisis.

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• You can only make minimum payments.

Lower monthly payments can save you from the urgency of full repayment, but it’s a terrible strategy to pay off your credit card bills. It will keep you in debt longer and make you liable for more significant interest charges. A high credit card balance also means a higher utilization ratio, which negatively impacts your credit score.

A bad score will not only make it difficult for you to apply for affordable loans in the future, but it will affect your ability to rent a home. Landlords typically check the credit rating of their potential tenants to avoid financial risks.

• You are desperate to get cash advances.

Getting a cash advance is the most dangerous way to pay your debt. While it’s a tempting option to solve your debt problem quickly, it can cause you a bigger financial disaster. Cash advance comes with an unbelievably high one-time fee plus ATM fees and expensive interest rates.

Where to ask for help

If you find it extra challenging to keep up with the growing pile of credit card bills every month, you might need to ask for help before the worst possibilities happen. Look for a reputable marketplace lender who will help you consolidate your debt and reduce your emotional burden. Depending on your credit score, most lenders can offer you consumer loans with lower interest rates.

You might find comfort in paying the minimum, but you can’t do this forever. It’s frustrating to pay and pay, but you never really pay it off. Licensed lenders can help you pay off your credit card balance in full, so you can save money on paying the interest and protect your credit score from negative consequences.

A credit card is a good option for responsible and disciplined consumers. However, it might be better to stick with a debit card or cash if you always exceed your credit limit, afford the minimum monthly payment, and spend more than you can repay.

Sameer

Sameer is a writer, entrepreneur and investor. He is passionate about inspiring entrepreneurs and women in business, telling great startup stories, providing readers with actionable insights on startup fundraising, startup marketing and startup non-obviousnesses and generally ranting on things that he thinks should be ranting about all while hoping to impress upon them to bet on themselves (as entrepreneurs) and bet on others (as investors or potential board members or executives or managers) who are really betting on themselves but need the motivation of someone else’s endorsement to get there.

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