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Downsides of credit card debt

On Behalf of | Jun 6, 2017 | Bankruptcy

Many Americans accumulate credit card debt at some point during their lives. The average amount of credit card debt in U.S. households is $5,700. This may not seem like a huge amount, but it can have long-term consequences that Virginia cardholders may need to be aware of.

People who need more money for living expenses or want to start an emergency savings fund may need to start paying off credit cards in full. When making minimum payments, interest is charged on the total balance. It is in the best interests of credit card companies for consumers to only pay the minimum amount so that interest is accrued. People who make only the minimum payment often spend more on interest than they do on the principal amount.

When debt lowers a credit score, this makes it harder to get a mortgage. This means people must keep renting instead of buying a home. However, people with poor credit are sometimes required to provide an extra security deposit to a prospective landlord.

Saving money is important for the future, and those who do not save for retirement may miss out on both the principal savings and the amount this savings would grow. For example, a person might have $50 less per month for retirement savings because of credit card debt. With a 7 percent annual return rate over 20 years, this results in a loss of almost $25,000.

With Chapter 13 bankruptcy relief, a debtor can keep property and reorganize debt into an affordable payment plan that lasts either three or five years. An attorney can describe how this particular chapter works as well as its eligibility requirements.