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Just How Bad for You Is Credit Card Debt Anyway?

A homeowner looks worried as he reads through his household bills at the dining table.

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Credit card debt is bad news. You’ve most likely heard this many times from financial experts and there’s a reason for that. Carrying a balance on your card can be a very bad way to borrow money, and it can wreak havoc on your personal finances.

But just how bad is it really to have a balance on your credit card? Here’s what you need to know about the serious downsides of credit card debt.

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Credit card debt can be really expensive

The biggest reason why credit card debt is so bad is because it is so expensive. The average interest rate on a credit card is 21.47%, but some cards charge even higher rates. That’s a lot of money to spend for the privilege of borrowing. If you have a $2,500 balance on your card and you pay the average rate, you’d pay around $45.99 a month in interest charges. Over the course of the year, that would be over $550 in interest charged.

The higher your balance, and the longer you carry a balance, the more your cards will cost you. These interest charges take money that you could be using to save for emergencies or for retirement — or even that you could use for more fun things like vacations.

It’s easy to fall into the minimum payment trap

Another big downside of credit cards is that the minimum payment is typically really low — and it’s tempting to just pay those minimums for months or years on end. After all, you may feel like as long as you can afford to keep up with your payments, you’re doing fine.

Unfortunately, if you are paying only the minimum, most of your payment goes to interest and you don’t make progress on repaying your debt. You could be in debt for years. Say, for example, you have a $2,500 balance at 21.47% interest and you make minimum payments equal to 2% of your balance. You’d end up paying $13,833.63 over time, and it would take you more than 30 years to be debt-free.

You could cost yourself future opportunities

If you have credit card debt, you have monthly payments you must make for as long as you’re carrying a balance. This means that you’re going to be paying for past purchases for a long time to come — potentially for decades.

During this whole period of time when you’re sending off interest and small principal payments to your card company, you won’t have that money to do things like cover the bills or invest in a brokerage account. This can make it harder to save for future goals, or even to live within your means. If a good portion of your future income is still paying for the past, it will be harder to live within your means in the present.

For all of these reasons, you should do all you can to avoid credit card debt. Usually, this means living on a budget to ensure you only charge an amount on your cards that you can fully pay off. If you are already in credit card debt, make a plan to pay it off as soon as you can. You may want to look into using a balance transfer credit card to lower your rate and then making extra principal payments to pay down the balance ASAP.

It’s really not a good thing to be in credit card debt. And if you are in it, you should start working on your debt payoff plan now so you can avoid these undesirable consequences and build a more secure future.

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