Credit Card Trouble

Credit Card Trouble

Credit cards can be powerful tools that help you pay bills or buy groceries before your next payday. However, they may also put you in significant debt and make it harder to achieve the type of financial security that you crave.

What are some signs of credit card trouble and what are some consequences that you could face for not paying your credit card bills on time?

You Could Go to Jail for Failure to Pay

While you may not go to jail because of a missed or late credit card payment, you could go to jail if you commit a crime to come up with the funds for that payment. If you are taken into custody for a financial or any other type of crime, it may be necessary to get a bail bond to secure your freedom. The process may take several hours, and you or whoever gets the bond may have to put up collateral to obtain it.

Sign of Potential Debt Problems

The minimum payment on a credit card may be $25 to $30 a month, which is sustainable for most people. However, if you have multiple credit cards at a high-interest rate, you could be paying hundreds or thousands of dollars each month to credit card companies without putting much of a dent in your principal balance.

Using Other Assets to Pay the Debt Could Also Be a Red Flag

If you decide to borrow against your house, car or any other asset to pay your credit card debt, you may have overextended yourself. In addition to having to pay back your credit card debt, you may now have to pay off a title or home equity loan. Failure to repay those loans could result in the loss of your car or your home as they are generally secured loans that use the asset as collateral.

Borrowing From a Retirement Account May Not Be a Good Idea

While you may have enough in a retirement account to pay off a large portion or even your entire credit card debt, that may not be the best move. This is because you have to pay income tax on the amount that you take out. Furthermore, you may need to pay a 10 percent early withdrawal penalty if you are 55 or younger. In addition to those extra costs, you lose the ability for that money to compound tax-free in your IRA or 401k.

Balance Transfers Are a Sign of Too Much Debt

Transferring your credit card balance to a new card with no interest for 18 or 21 months may be a great short-term move to save money. However, it may also create the temptation to accrue new debt on the card that you transferred the balance from. If you find that you transfer balances on a routine basis, it is a sign that you have too much debt and may need a better plan to eliminate it.

Are You Thinking About Bankruptcy?

If you have thought about filing for bankruptcy, it means that you have too much credit card debt. While bankruptcy may be a great way to get a fresh financial start, it means nothing if you haven’t learned from your previous mistakes. Therefore, it may be a good idea to put the credit cards away and start developing new financial habits today to ensure that you don’t overextend yourself again in the future.

Credit cards can be an effective tool to build a positive track record with debt and make it easier to borrow larger amounts in the future. However, if you are planning on putting a purchase on credit, make sure that you have a plan to pay it off in a timely manner to avoid costly interest charges.

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