Excessive Credit Card Debt is High Risk for Financial Stability


Excessive Debt Can Put You Into a Difficult and Critical Situation

Most people advise the use of credit and quote the benefits of convenience. They treat credit cards as something useful and helpful.

But, as everything else, there are also people who disagree and these individuals believe that credit cards are the modern world’s public enemy.

This group shuns credit cards altogether and their argument is primary based on the danger of excessive debt.

Personal Experience

As with any argument the side taken may in large part be due to personal experience with using credit. Those who avoid using credit cards altogether may be people raised to view credit as “bad” or may be former credit card users who found themselves deeply in debt through misuse of credit cards.

The facts are probably somewhere in between. Using a credit line is convenient if you use it only when needed. You may be traveling and need emergency repairs on your car, have an unexpected medical expense or need to replace a broken appliance immediately.

Also, the truth is that some of us pull out our credit cards far too often for small purchases or impulse buys which often result in excessive debt.

Two Viewpoints

If you look at the problem of having too much debt on your account, you may notice there are two viewpoints. The first is from the angle of the lender while the second point of view is that of the individual who carries that card.

In recent years, the competition to add more customers has resulted in credit issuing banks placing excessive debt as a lower priority in lending decisions.

The economy has shown those banks the folly of that attitude and new laws, combined with stricter lending policies, may help keep account balances more in line with what the customer can afford.

The dangers of carrying excessive debt became clear when the economy took a downturn. Customers who were barely able to meet minimum amounts due each month found themselves unable to make any payment at all after losing their jobs.

The result was a surge in the number of accounts overdue or eliminated through bankruptcy filings.

Reacting to these losses and to new laws that would take effect in 2010, banks began lowering credit lines and raising interest rates in hopes of regaining profits. The result was not as they hoped as default rates continue to climb.

Selective Offers

The offers you might get today that invite you to sign up for a new credit card are more selective. The focus is on special offers, rebates and other trinkets meant to lure you away from your current favorite card.

Qualification requirements have been tightened which is good for those who might overspend if given more credit than they can handle.

For individuals, debt control is required to prevent excessive debt. It might help to have questions you ask yourself before making any credit purchase.

Do you need the item now? Can you pay for it when the first credit card bill arrives? Is the sale price low enough to balance any interest you might pay on this purchase? Think before you buy and you’ll make better decisions.

More Debt Than You Can Pay?

If you have more debt on your credit cards than you can pay, make a plan for paying extra on the account each month to bring the amount you owe to a reasonable limit.

If you are new to using credit cards, decide what you will use the card for and what you will not charge to it.

Check the total balance on your credit accounts often to know exactly what your debt is. With that number in mind you will find it harder to make impulse buys and you will be able to save yourself money while staying out of debt.