The Evolution of Credit Card Debt
Back in 1958, BankAmericard issued the first general-use credit card on a national basis. Prior to then, individuals did not have the wide-spread privilege of financing every-day purchases. As far back as the 1930s charge plates were used for purchases at a particular store. Now, 50 plus years later, many Americans are burdened with much more credit card debt than BankAmericard probably ever expected. Credit card debt in America now exceeds $850 billion. The average credit card debt per U.S. adult, excluding zero-balance cards and store cards is $4,878. Anyone see a problem with these numbers? Credit was not originally intended to be for consumer use. Rather, the history of credit shows that it was meant to be extended to assist in the opening of new businesses in our company. Unfortunately for many, credit evolved into what we know today – individuals with a wallet full of plastic with the option to spend now and pay later.
If you have the ability to utilize credit responsibly, I have no issue with using available credit to make purchases. Responsible use usually means using credit when you know that you will be able to pay back the entire balance at the end of the month and before interest kicks in. Many people employ this tactic to help accumulate rewards, such as miles or points for travel. I can’t blame people for doing this. It’s a great way to get discounted or free travel. Unfortunately, a number of Americans aren’t using credit for this purpose. Rather, many are using credit cards as a means of supplementing their income. It is easy to fall into this trap, but for many it is hard to ever get out.
Let’s think of credit card debt as similar to weight gain. The first few pounds gained are seen as a bad binge. A couple of months later, those few pounds turn to ten to fifteen pounds. Before you know it you are twenty-five pounds overweight. This scenario plays out just as easily with debt. Let’s say you have a decrease in income or an unexpected auto expense. You start supplementing or paying for these expenses with a credit card that has a high limit. This gets you out of your immediate jam, but then you are carrying a balance on a credit card. Since you’re strapped for cash, you only pay the minimum amount due and start incurring finance charges, sometimes up to 18 percent. The balances don’t go down and you now find that you’re short on cash because your money is going towards paying the credit card debt you now have. So you start using your credit cards to make purchases you would have paid cash for a few months ago. This is a dangerous cycle, which can lead to your debts growing beyond what you imagined a few months back. Before you know it, you are now faced with $25,000 in credit card debt. I have referred to this in the past as a debt spiral. Before you know it, you are stuck paying the minimum amount due and the balance never seems to go down. So what do you do now?
For some people, the only logical answer is to file for bankruptcy. If your debt load is significant and your income is low, you may qualify for a Chapter 7 bankruptcy, which will discharge your debt in its entirety upon discharge. For those that don’t qualify for a Chapter 7 bankruptcy, you may qualify for a Chapter 13, which is more like a payment plan for your debts. If a Chapter 13 isn’t a good option, you may want to consider a negotiated debt settlement. What I would like to impress upon you is not to believe everything you read. You do have options in dealing with your debts. And the consequences of each option should be considered before you make a final decision. Seeking the opinion of a learned professional is probably your best bet. Get a referral from a friend or search the internet for a professional with experience dealing with debt issues. You owe it to yourself to know you options to deal with your debt issues.