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Mommy Jenna

Why Is Credit Card Debt So Hard to Beat?

Many of us believed as children that credit cards were a way to buy things without actually needing cash. As Rebecca Bloomwood, the charming-yet-misguided protagonist in Confessions of a Shopaholic, says during one memorable monologue: “They didn’t even need any money, they had magic cards.”

In this fantasy world, with just one swipe and a quick signature, you could walk out of a store with almost anything you wanted. It’s easy to see how this idea can become intoxicating. In the present, it feels like you gain something without having to offer anything in return.

But there comes a time when you grow up and realize that credit cards, while convenient, do not grant you a magical exclusion from having to pay your bills. While credit cards do offer advantages like buying you time on big-ticket purchases and earning you rewards, there will come a time when your balance is due. Rebecca Bloomwood herself ended up with a whopping $9,000 in credit card bills alone thanks to her denial-fueled mentality.

To add fuel to the fire, experts regard credit card debt as particularly hard to beat. Why? Keep reading to learn more about the risks of racking up credit card balances and strategies for eliminating this type of debt if you do have it.

Reason #1: High Interest Rates

The primary reason credit card debt can become a formidable foe is its high average interest rate. The annual percentage rate (APR) you pay is basically the fee you’re paying to borrow money to buy things on your credit card. If you’re unable to pay off your total balance each month, you’ll start to accrue interest. The higher your APR, the more quickly your interest will build—turning the amount you actually spent into a much larger sum, and fast.

Simply put, credit cards tend to have a higher APR than many other kinds of loans, often in the double digits. According to NerdWallet, the average APR in late 2018 was 16.46 percent. The exact number will depend on the consumer’s credit score and the nature of the card, but it’s important to be aware high interest rates can make debt continually more difficult to pay back over time as it keeps growing in the background.

Reason #2: The Myth of Minimum Balance

If you pay back your minimum balance each month, you don’t have to worry about interest, right? Unfortunately, it’s not that simple. Paying the minimum balance on credit card debt—either a small fixed amount or a small percentage of the total owed—will keep late fees and debt collectors at bay, but it won’t stop interest from accruing in the meantime. Consistently paying the minimum amount means you’ll pay much, much more in the long run.

Reasons #3: Confusing Terms

Consumers may also find credit card debt is downright difficult to juggle, especially if you, like many Americans, use multiple cards—each of which brings to the table its own APR, monthly statement, etc. Many consumers in a pinch open a new card or conduct a balance transfer without fully understanding the consequences. So, if they fall behind on payments, they find themselves both stressed and financially strapped as a result.

Credit card debt may be hard to beat, but it’s certainly not impossible. Here are a handful of strategies to explore:

  • Debt Consolidation: Consumers take out a personal loan, use it to pay back debts, then focus on repaying the single loan over time with lower interest.
  • Debt Settlement: Through a program like Freedom Debt Relief, consumers make monthly deposits into a special account until they’ve stockpiled enough to kick off negotiations with creditors—aiming to reduce how much they owe. Qualified enrollees may even qualify for Consolidation Plus which harnesses consolidation to speed up settlement.
  • Credit Counseling: Working with a credit counseling organization, consumers can get advice on how to handle debts. While this strategy does not reduce how much you owe, a credit counselor may be able to get you lower interest rates and sign you up for a debt management plan.

Are you caught in the “revolving door” of credit card debt? It’s time to break the cycle.

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