The Hidden Dangers of Credit Card Debt
Credit cards are such a convenience. Don’t like to carry wads of cash? Forgot your checkbook at home? Need quick access to funds? No problem! That little piece of plastic in your wallet solves all those problems.
But such convenience has a price. And across the country, Americans are paying that price: Statistics place the average individual credit card debt at more than $5,000. And studies have shown that consumers are willing to shell out more for purchases (as much as twice the amount!) when using credit cards rather than cash. Maybe worse news is that more than half of Americans don’t (or can’t!) pay their credit card balances in full – meaning that their burdens carry over and multiply from one month to the next.
If you’re part of this expansive group, you already know the financial repercussions: high interest rates that compound what you owe, late fees and other penalties on top of your payment, the ease of overspending, etc. But what else does credit card debt entail? Let’s take a closer look at a few “hidden” dangers of credit card debt.
Damaging your credit score
The most important factor in calculating your credit score is something called credit utilization – in short, your outstanding balance relative to your credit limit. It measures the amount of available credit you are using – the lower your utilization percentage, the better your score because it shows that you only use a small amount of the credit available to you. On the flip side, a maxed-out credit card (or two… or three…) equates to high utilization and lowers your credit score because creditors see all those maxed-out cards as a warning sign that you’re at risk of falling behind on payments.
Preventing you from building your emergency fund
Life can dole out plenty of lemons. A plumbing fiasco. A leaky roof. A major car expense. A tumble down the ski hill. There’s no end to the potential surprises around any corner – or the havoc these kinds of unexpected expenses can wreak on your financial stability. That’s why it’s critical to have a system to help you save, at a minimum, three months’ worth of expenses. But if you’re pouring all your money into credit card bills, there’s nothing left over to set aside to grow your safety net.
Losing track of your spending
Tracking your spending is a foundation of a healthy financial life, but if you’re not a meticulous record-keeper, using credit cards can make it more difficult to keep up with all your spending. And that can lead to overspending. This is especially applicable if you have a spouse you share credit accounts with – you’ll typically each get your own card linked to the same account. And using multiple cards further complicates your efforts to track your expenses.
Ruining your relationships
Speaking of sharing a credit account, experts point to financial woes as one of the main reasons for divorce. Many households don’t have a budget or even a planned spending pattern – causing surprising troubles when the credit card statement arrives. One spouse might pile on debt if the couple isn’t regularly checking-and-balancing each other to stay within their budget. If one partner is a saver and the other is a spender, the marriage could suffer when one of the partners fails to understand the need to manage finances.
Causing emotional and physical distress
It’s widely held that debt causes stress, anxiety, and depression. All this stress then suppresses the immune system and can give rise to health conditions and diseases. In fact, more than 60 diverse studies have confirmed a significant relationship between debt and suicide, drug/alcohol abuse, and negative health outcomes like obesity. One report found that individuals with high debt have a higher average diastolic blood pressure, a condition with a significantly higher risk of hypertension and stroke. Of course, this isn’t specific to credit card debt, but those monthly statements are a continual (and stressful) reminder of everything you owe.
We hope you’re not experiencing any of these credit card dangers first-hand! But if you are, we’re here to help. Reach out to American Credit Foundation today – one of our friendly experts will counsel you out of these hazards and get you on your way to financial stability.