Beyond The Myths: Facts About Credit Card Debt
At the beginning of 2007, the US Commerce Department revealed that, according to their data, the American personal savings rate is not only low, but also has actually has fallen into the negative zone. In other words, not only is the average American not saving anything, but he is also spending more than he makes. This is something that has not been so widely seen since the Great Depression, with credit card debt playing a great role in the current situation. With this in mind, setting aside myths and understanding the facts about credit card debt is more important than ever.
Talk to people or do some reading on the Internet on the topic of credit card debt, and you're likely to run into a variety of myths relating to this type of debt and how to manage it. Often it is easier to believe the myths and take advice that leans more towards justifying what we want to do than it is to follow wise council that requires a bit more self-discipline to achieve.
This is particularly true when it comes to carrying credit card debt. It is one thing to carry debt for an emergency car repair and quite another to carry debt because a sporty set of rims for that car happen to be on sale. In many instances, the debt carried on a credit card is not for essentials and all too many people find themselves in a difficult financial bind and their credit history seriously compromised simply due to things they really could have lived without.
One popular myth about credit card debt is that paying only the monthly minimum is just fine. It is not. Not only does that ensure that you'll be paying a whole lot more in the end because of the interest, but it also does not benefit your credit rating. The amount of debt you carry and the percentage of your income that the debt represents is an important factor in your credit rating.
Another common myth relating to credit card debt is that you build your credit rating by creating and then paying debt. Closely related to this myth is another – that using credit cards can save you money, such as with cash back programs and other promotions.
The fact is that if you carry debt, those promotions are unlikely to ever save you money, not with what you're going to spend on interest to carry that debt. Furthermore, there are a variety of ways to build your credit rating, such as paying your bills and the debts that are more essential, such as your home mortgage, on time. It is better to resist the temptation to create credit card debt for nonessential things and save up the cash for what you want.
There are a couple myths associated with how to handle a situation in which a large amount of credit card debt has been incurred. Ask around or do some reading, and it could quickly seem like bankruptcy and debt consolidation loans are easy, painless solutions to credit card debt that has become unmanageable. Those are dangerous myths to believe, because while in some circumstances those solutions are the best option, they are neither easy, nor painless. In fact, they are better considered to be a last ditch effort to resolve credit card debt.
Credit counseling would be a better first step, which is why it has become legally required for bankruptcy proceedings relating to personal or consumer debt. You’d be surprised at how reasonable many creditors can be if you just communicate with them. Some, being so concerned about getting the principal of the debt, are willing to negotiate about interest and set workable repayment schedules. Debt consolidation can be a good step, but you need to be careful, paying close attention to how much such an arrangement will cost you in the end.
Credit card debt has become a serious burden for many American families, and all too often that debt consumes income, leading to even more borrowing and even greater debt. The negative rate of savings in the United States is a sure sign of financial trouble to come, making it best to clear away myths and start dealing with credit card debt from a foundation of facts.