Credit cards offer several benefits, including increased purchasing power, membership perks, building credit history and convenience. According to TransUnion, 500 million credit cards were issued by banks in the US in Q2 2022. This shows that many Americans use credit cards.
Even though credit cards are beneficial, they can be challenging, particularly when you are unable to pay off the loans. But what leads to high credit card debts?
Here are possible reasons.
Low income
Under-earning is one of the reasons why most people end up with high credit card debts. If your wage is low, perhaps the exact legal minimum rate, you can struggle to meet some of your needs. As a result, you may have to use credit cards to cover daily living expenses.
Nonetheless, even people with a good income may find themselves in high credit card debts due to the cost of living, which is growing yearly.
Unexpected costs
Many people budget for expenses according to their income. However, unexpected costs can disrupt their plan, leaving them to depend on credit cards. Some of these costs are home and car repairs.
It will help to have an emergency fund as part of your monthly budget. But if a repair is more than predicted, you may end up using a credit card.
Having many cards
Multiple credit cards give more spending power, which seems exciting, but can lead to high credit card debt. Dealing with debts from different lenders with high interests is stressful. Further, distributing funds to make the minimum payment in all cards may just prevent the fees for lateness, but it may not be enough to pay the whole debt.
If you have high credit card debts, you may file for bankruptcy. Get guidance from an experienced professional to relieve some of this burden.