Daily Archives: May 10, 2010

The Six Deadly Credit Card Debt Facts


Credit Cards are dangerous, when you hand it over to purchase an item it whispers in your ear “This is not real money.” Here we are going to cover 6 of the most dangerous credit card debt facts. It is so much easier and convenient to spend money using a credit card rather than cash, and this is what the credit companies love.

1.Late Payers

They especially love you if you are a late payer, these are the people who the credit companies really make their money from. The people who pay late, only make the minimum payments and regularly miss payments. Without the late payers the profit margins of the credit industry would be far less healthy.

Before the credit crunch, the credit card companies would bombard our letterbox with letters stating “ you have been specially selected to apply for our premier credit card, simply fill out this form” – a high percentage of those receiving the letters would have a poor credit rating, this is ideal for the credit companies because they know they can make money out of you. In fact, some credit companies may turn down an application for a credit card, if you have a good credit rating because they cannot make enough money from you.

2. Just the Minimum Payment

You are an ideal customer, if you only make the minimum payment each month on your card. Why is this? Because this gives the credit companies the most profit possible. If you have a credit card which charges 19% interest and you only make the minimum 3% payment each month, it will take you years to pay for a single item of clothing that you have charged to your card. This is the power of compound interest, you are paying 19% interest on the item you purchased, but also you are paying 19% interest per year on the interest which has already built up. This is how easy it is to quickly fall into the debt hole.

3. Credit Card Cheques

This is one of the really powerful marketing techniques that the credit companies use to quickly drive you into debt. The credit companies simply send out blank cheques to their customers, it’s simple, all you have to do is complete the cheque and you can spend the cash. People tend to use these cheques when they are already struggling with payments to cover their debts, and thinks the cheques will cover the shortfall they have this month.

4. Increase your credit limit

Now, the credit card companies get really crafty, they increase the spending limit on your cards, quite often without even asking if you want the increase. They simply will increase your credit limit by £1000, and before you know it you are already dipping into the new credit limit. The next time you look at your statement, you realise they have increased your credit limit, but you think to yourself ‘ oh well the credit company must think I can afford the extra debt’ – WRONG – the credit company want you as far in debt as possible so that they can make more profit out of you. You are now far into the spiral of continuous credit card debt.

5. Increasing the APR

Read the letters and statements you receive for your card very carefully. The credit company can increase the APR at any time, for instance it’s known for credit companies to change their interest rates from 19.9% to 26.9% APR. Most people will not even realise the interest rate has changed, and their credit card debt will now grow at a much faster rate. – The credit company can now make some serious profits out of you.

6. The 0% interest rate

In theory, transferring your credit card debt to another credit company with a 0% interest rate is a good move to save you a lot of money. However, more often than not, this is a trap. The first common mistake is that, people do not cancel the original credit card, so they now have two cards and eventually both of them end up maxed out. The second mistake is, what happens if you have not cleared the debts on the new card by the time the 0% interest rate has finished? More often than not, the new interest rate is a high interest rate.

This is where things can really spiral out of control, the next step is to get another card with a 0% interest rate, and another with a 0% interest rate, and another with a 0% interest rate, before you know it none of the cards have been paid off, and all of them are maxed out and you’re now tens of thousands of dollars in debt.

The Facts

Hopefully, now that you know the most dangerous credit card debt facts, you have a powerful weapon for fighting against the credit card companies tricks to get you further and further into debt.

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