Knowing well about the credit card arithmetic is key to keeping credit card debts under control
New credit card users are most prone to uncontrolled debts due to their inability to control the excitement of the newfound apparent financial freedom. Let us take the case of Michael, a college student who has a job to fund his studies and do not need the support of parents. On receiving the credit card, he perceived it as an opportunity to indulge in spending whenever he wished. The initial excitement led him to keep spending to fulfill wishes that kept on cropping up almost incessantly. It became difficult to keep the wishes under control because of the spending ability and thus began the process of building up credits. He was so much engrossed in spending that little did he think about settling bills. He felt that making payments was all that he needed to do and was doing it religiously.
Credits lead to more credits
Once Michael became used to the habit spending there was no stopping. The credit card companies lost no time to issue a few more credit cards to him thereby fuelling the expenditure that kept spiraling rapidly. Soon Michael was carrying debts of $25,000. He was very particular about making payments but could never think of settling the bills that kept ballooning. Since his income was just too low as compared to the debts, the rate of interest grew threefold from under 10% to about 28%. It was only when the galloping credits became almost uncontrollable that Michael realized the importance of settling the bills. Unknowingly he had walked into the minimum payment trap that had created the burden of credit.
Not a substitute for student loan
Many students use credit cards for books and tuition, which is a big mistake because student loans are much friendlier for such spending. Credit card interests are much higher to justify expenditures on these accounts. The interest rates on student loans are much more flexible, but the problem is that students are so much overwhelmed by the financial independence they enjoy for the first time with credit cards that they overlook the elementary arithmetic of credit cards.
Debts affect financial aid
Students who are struggling with credit card debts might find difficulties in paying for school. Credit card debts can influence the choice of school for the student and for those who avail student loans (privately funded); the debts also affect the interest rates. They would find it difficult to find a matching scholarship. The students or their parents have to bear a part of the funds allocated for scholarships based on the consideration of the income and not the spending power. When students carry massive credit card debts, they could not arrange for the contribution that could qualify them for scholarships.
Seek debt relief
If you ever find yourself in the position described above, you should seek professional help from companies for showing the way to manage debts effectively. Since the professionals know the most effective solutions, you could experience comfort in managing debts that not too long ago had appeared menacing.
Thank you,
Glenda, Charlie and David Cates
