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Why Credit Card Debt is One of The “Worst Kinds” of Debt

When it comes to debt, there are both good and bad debts. Good debts can help individuals acquire assets that appreciate, such as mortgage payments on a house. Alternatively, bad debts do not accrue value and rather come with high-interest rates, such as purchases on a credit card. Credit card debt is one of the worst kinds of debt a person can carry, as it typically doesn’t provide any assets of appreciating or ongoing value, comes with a high-interest rate, and in some cases, can take years to pay off. Here’s a look at why credit card debt is one of the worst kinds of debt. 

Credit Cards Have High-Interest Rates 

Credit cards can come with interest rates in the double digits, making them the most expensive form of borrowing. For comparison, other loans, such as mortgages and student loans typically have interest rates in the mid-single digits. These high-interest rates can make it very challenging to pay off balances in a reasonable amount of time. 

Making only the Minimum Payment Can Result in a Much Larger Balance Over Time

All it takes is a look at the minimum payment warning on your credit card to see the danger of only making the minimum payment on your debt. This warning states the amount of time it will take for you to pay off your debt if you only make the minimum payment every month. Taking this approach to paying off debt can result in a balance that can be double or triple what you originally paid due to accrued interest. If you choose to carry debt on a credit card, it’s always best to pay it off as soon as possible. 

Credit Cards Aren’t Used to Acquire Appreciating Assets

Taking out debt can be a positive action when it is used to acquire an asset that will pay itself off or appreciate over time, such as a home or educational degree. Generally speaking, mortgage debt is profitable in the long term, as homeowners can either generate rental income or sell their home in the future for a profit. Additionally, taking out debt for educational purposes can help individuals make a better salary than they would without a degree. Of course, both of these investments still carry risk, but for most people, have positive payoffs. 

Conversely, credit cards aren’t used to buy valuable assets that appreciate over time. In fact, they are used for depreciating purchases, such as clothing, kitchen appliances, electronics, etc. While there is nothing inherently wrong with these purchases, putting them on a credit card can mean paying large amounts in interest, raising their true price to be much more than the object’s face value. 

How to Avoid Bad Credit Card Debt

It is important to note that credit cards can be a great tool when they are used correctly. However, allowing significant debt to accrue on a credit card can be extremely expensive, and it’s best to avoid carrying it from one month to the next. The best way to avoid bad credit card debt is to avoid purchasing things that won’t increase in value and to only buy items that you can pay in full each month before interest accrues. 

Contact a Skilled Debt Settlement Lawyer at McCarthy Law

If you are struggling with debt and don’t know the best approach for tackling your payments, it can be helpful to meet with a skilled debt settlement lawyer. At McCarthy Law, our attorneys are dedicated to helping our clients get out of the cycle of debt. Our licensed attorneys negotiate with lenders to reduce the interest rate and balance of your credit cards. 

To schedule a consultation with one of our skilled student loan settlement attorneys, call (855) 976-5777 or fill out our online contact form.

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Jacob Hippensteel

Jacob Hippensteel focuses his practice on consumer protection and business litigation. Jacob regularly assists clients by ensuring that their rights as consumers are protected under Federal and State consumer protection laws. Jacob regularly advises clients on a wide variety of issues, as well as protecting those client’s interests in federal and state courts.