Credit card debt amounts to hundreds of billions all around the world. Most people use credit cards due to their convenience, but there are certain risks that aren't immediately obvious. So here are five reasons to eliminate your credit card debt.
1) Credit Companies Hold All The Cards
When you owe money to a creditor they own a piece of you. For example, they can change the terms of your agreement whenever they want. In most cases, all they have to do is to send you a letter giving you 14 days notice.
For example, they can increase the penalty for late repayments or going over your credit limit. And if you don't like it. . . there's nothing you can do apart from moving your debt elsewhere.
But the moment you make the last repayment on your credit card debts, you take control of your financial position and take the first step towards financial freedom.
2) Most Credit Cards Have A Variable Interest Rate
In the same way that your lender can change the rules of the agreement, they also have the power to change the interest rate that you pay on your debt.
So you could find yourself in the position where you make credit card purchases at 8.9% APR, miss one repayment date, and end up repaying the rest of your debt (in addition to the late payment fee) at the penalty rate of 19.9% or even higher. Such an increase could add years and thousands to your repayments.
Which leaves you with two options.
a) Accept the increase and devote more of your life to increasing their already vast profits.
b) Or spend more time and effort looking for a new credit card deal with a lower rate of interest. And while it's always a good idea to be on the lookout for a better deal on your debts, there's no guarantee that your new lender won't increase their interest rate a few weeks or months later.
3) Special Credit Card Deals Are Extremely Fragile
Credit card companies are only too keen to grab your business by offering special deals and promotions. But they're just as keen to remove them from your account the moment you breach one of the many terms and conditions of your loan agreement.
Six months interest free credit on balance transfers, holiday periods and ultra low interest rates will all be withdrawn if you step out of line with your repayments. And that's before you consider the various late payment penalties.
Special deals, incentives and discounts are only worthwhile if you continue to repay the right amount on time every time.
4) Credit Cards Can Be Too Convenient
Credit cards are probably the biggest threat to your financial security. And as I said earlier, credit cards are so convenient. Almost every business accepts them and you don't have to risk walking around with large sums of cash. It's so easy to spend more that you intended to because it doesn't feel like spending money!
And the threat becomes even bigger when you don't have any money and have to rely upon your credit limit instead. Then the statement arrives, and because you didn't have enough money to buy the items in question at the time, the chances are that you can repay your credit card debt at once. So you pay part of the debt. And before you know it you get stuck in a rut, making large repayments every month to cover your ‘convenience’ purchases and interest on top.
So unless you have great will power, it's important to eliminate your credit card debt and build up your personal finances until you have enough money to buy the things that you want without borrowing.
5) Beware Of A Change In Your Financial Status
If you reach the stage where your debts threaten to get out of control you might have to start juggling the payments on your different debts. So in order to avoid penalties on your credit card you decide to miss a payment on your mortgage/personal loan instead.
But your financial history is all linked together. Missing a payment on your mortgage won't just make your bank manager nervous. All your lenders will start to fear that they won't get their money back.
So if you're late paying or miss a repayment on any of your debts, your credit rating will suffer. And most credit card companies will take advantage of a change in your financial history by increasing the interest rate on your credit card. And that's despite the fact that you've never missed a payment on your credit card debt.
by Stuart Laing
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