subject: Credit Card Debt Explained [print this page] A huge problem known as credit card debt.
Today, many people see credit cards as a necessity. The credit card issuing industry is gigantic. But people can get in over their heads and create a problem for themselves in the form of credit card debt.
To understand the problem of credit card debt lets go over what exactly it is.
A bank, the credit card company, will issue an account to an individual that allows that person to charge, or buy with the banks money, items to that account.
When purchases are made against your credit card account, this is what's known as your credit card debt. Credit card debt payments are made monthly. The credit issuing company will mail you a monthly report showing how much credit card debt you have acquired and what your payment will be that month.
You must pay off your credit card debt by the payment due date failing which you will incur late fee and interest charges. However, you have the option of making a partial (minimum) payment too, in which case you don't incur late fee but just the interest charges on your credit card debt. If you don't pay off your credit card debt in full, the interest charges too get added to it.
So your credit card debt keeps on increasing, more so because the interest rates on credit card debt are generally higher than the interest rates on other kind of loans/borrowings. Further, the interest charges add on to your credit card debt each month to form the new balance or the new credit card debt amount.
Credit card debt will continue to spiral out of control if the entire amount you charged the month before isn't paid off, because the credit card company will add interest charges to the interest you already owe! All of a sudden your small credit card debt seems to grow out of control.
Moreover, if you don't still control your spending habits, your credit card debt rises even faster. This is how the vicious circle of credit card debt works.
