What is the problem with credit card debt and why should we worry about it? There is nothing wrong with credit cards or even using credit cards so long as it is done in a sensible and sustainable way.
Credit cards are a very useful financial tool to get us over the humps and bumps of modern life where unexpected expenses suddenly occur when we don’t have enough money to pay for them. What credit cards are not so good for is long term debt.
Using credit cards to pay for things is an expensive way to borrow money and an expensive way to fund the lifestyle you want to enjoy. The cost of borrowing the money has to be added to the cost of what you purchase. Add 20% to the cost of everything and suddenly that bargain dress at 10% off retail doesn’t look such a great deal.
Credit card debt is exponential. We all tend to add to the debt all the time and never pay it off. Even if we avoid increasing the debt and we simply maintain a stable debt we are paying 15, 20 or even 25 per cent extra on the outstanding debt. Nobody in their right mind wants to pay out 25% for nothing but that is what we do by purchasing everything on credit cards and maintaining a very expensive debt.
The problem with credit card debt is not the credit card itself. Nor is it the fact that we are in debt. The problem with credit cards is that we build up a long term debt that becomes difficult to manage and consequently continues costing us a lot of money in interest charges for a very long time. The lesson is to use credit cards sparingly and use them only for short term borrowing to get us through difficult financial patches in our lives.
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