Dealing With Credit Card Debt and How It Can Affect Your Credit Rating

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Getting into credit card debt is easier than people realise

Swiping a card to make a payment is fast and easy but if it is not monitored properly, debt can pile up quickly. Credit cards have limits and regulations for their use. If consumers are not aware of these, they can end up paying more than they owe and fall into an unending cycle of debt. Before opening a line of credit, or if you are already in the midst of debt, there are some important things you need to know to help keep credit card debt at bay.

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Differences Between Credit Cards, Debit Cards and Store Cards

When it comes to paying with plastic, there are a number of different cards made available to consumers. Each of these cards works differently and has different positive and negative attributes that should be understood when using them.

The main types of these cards are credit cards, debit cards, and store cards. Although all of these can make a payment with a single swipe, how they make that payment as well as how it will affect your bank account and credit is different.

Credit cards are issued by banks or other large companies and are a form of borrowing. These cards have spending limits and require the cardholder to make monthly payments toward the balance. If the balance is not paid off in full every month, an interest rate will apply and increase the balance overall.

Credit cards can also be used for cash advances, or borrowing cash from the credit card company. Although these cash advances are convenient, they also come with a much higher interest rate.

Debit cards are issued by banks and linked directly to the cardholder’s bank account. When this type of card is used, the funds are taken right from this account and there are generally no additional charges.

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In The Red Before You Know It

Because this card is linked to an account, if there are not enough funds to cover a purchase or overdraft arrangement to cover the amount, the card may be declined or the banking institution will charge a fee for spending more funds than what are available.

Store cards work very similarly to credit cards in that they are a form of borrowing. Store cards are issued by retailers and are generally only accepted at specific stores or outlets. To draw in consumers, store cards may offer upfront benefits to encourage application but it is important to read the fine print, as many store cards have high interest rates.

Unless the balance of the card is paid off in full every month, these interest rates can pile up even faster than some credit cards.

How Credit Card Debt Works and How Late Payments Can Affect Your Credit Score

When credit cards are used to make purchases, financial institutions charge an interest rate for the money that is borrowed – the more the card is used, the more interest will be charged. Even though the minimum monthly payment is low, interest rate charges continue to accrue as long as there is a balance on the card.

If the cardholder is having financial difficulties and is not able to make payments on time or at all, charges and fees will continue to increase the overall balance and create more credit card debt.

Late credit card payments can also have a negative effect on your credit score rating

A cardholder’s credit profile will create a record of every late payment that is made and this document is used by other financial institutions to determine how reliable the cardholder is repaying loans or other debts.

This can cause problems for those looking to apply for mortgages, car loans, and other lines of credit – if the applicant’s credit profile is poor, they may be denied.

Credit card debt affects more people today than ever before, and dealing with this debt can be stressful. Even though it is tempting to just make minimum payments and ignore that the debt exists, it is much easier and more effective to deal with credit card debt sooner rather than later.

If you have a credit card debt problem, Jubilee Debt Management is here to help. Our knowledgeable advisors can provide cardholders with quick, confidential advice to help get their credit card debt back under control.

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