Why Credit Card Debt is the worst kind of debt

There are two ways to use a credit card- either you're responsible with it, or you aren't. If you are responsible with your credit card, it can be the best short-term loan available, but if you spend in a careless manner, it can be worse than the highest-interest loan. Credit card companies actually like seeing people being irresponsible with their credit, because they profit from your misfortune. Credit card debt is the worst kind of debt to have, and we'll go over some of the reasons for that here.

Merely having credit card debt puts you at a disadvantage. Having a balance on a credit card means that you've fallen for their trap; when a consumer doesn't pay off the balance with the end of the billing period, interest begins to add up, and they are socked with finance charges. Interest and fees are just one way that credit card companies profit from the consumer, and more than half of all households carry some credit card debt.

Credit cards can be an asset if they are used properly, but if they are used for frivolous reasons, they can really wreak havoc on a person's life. There are three aspects of credit card debt that can be damaging: the amount of debt you owe, your payment history, and the number of inquiries made into your credit. If you cannot afford to pay your entire balance each month, you'll just accrue more debt, which in turn will negatively impact your credit score. When your score changes, you'll find out that your credit card company is somewhat of a "fair weather friend"; they'll periodically re-examine your credit report, looking for changes. If you've gone over your debt-to-credit ratio, you'll get hit with higher interest rates and a lower credit limit because the company sees you as a risk.

Another bad thing about credit card debt is that it can also make your card company hold you liable for financial missteps with other companies. For example, you can pay your card bill on time each month, but if you've missed a car payment once or twice, the card company can use the universal default clause and raise your interest rate, and therefore your debt. Before you get a new card, read the terms and conditions carefully to learn more about the universal default clause.

Credit cards are meant to simplify the way you live your life, not to make it more difficult. However, the exact opposite seems to be true, as the US Federal Reserve reports that more than half of cardholders have a monthly balance. Some are not even aware that they have so much debt, while others are using their cards to cover a shortfall in income (only to end up with high penalties and even higher interest). To pay out more in penalties and fees essentially defeats the purpose of having a credit card, and any amount of credit card debt is something serious that needs to be dealt with.