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Falling Into The Credit Card Trap

By: Garry Crystal - Updated: 25 Nov 2012 | comments*Discuss
 
Debt Traps Credit Cards Lenders High

Lenders won’t say that they want customers to have large debts, but they will increase credit limits without checking whether customers can afford it. There are many easy ways to fall into the credit card trap that can leave you with unmanageable debts.

All Credit Lenders Love Debtors

If a customer is in debt to a lender, they are making the lender money. Customers in debt mean continued interest payments until the debt is cleared; this is one of the major ways lenders make money. There are various methods used by lenders to entice consumers into borrowing money. Not all borrowers will not fall into credit card debt traps but many do, usually those who can least afford it. This is why the UK has a major personal debt problem and credit cards are a big cause of unmanageable debts.

Raising A Credit Limit Unnecessarily

Many credit card companies will raise a customer’s credit limit even if the customer has not requested the increase. This can happen for two reasons: if a customer has been making regular payments, or if a customer has not been using their credit card. Many customers will take a credit card to buy a specific item, repay the debt and then stop using the credit card. To credit companies this is a sign that the customer can afford to make repayments without fail, and this is why they raise the credit limit. But credit companies will not check to ensure the customer can still afford the new higher limit if they do spend to the maximum.

Credit Card Limits And Easy Debt Traps

It's easy to spend to the limit on credit cards and still manage the low monthly payments. But minimum repayments to credit cards are designed to keep the customer paying interest for as long as possible. With minimum payments the customer is basically paying off the interest and barely making a dent in the actual amount spent. This is a debt trap that can take years to climb out of and the customer can spend thousands of pounds on interest alone.

Juggling Multiple Credit Cards

The average UK consumer holds one or more credit cards, while some have as many as five. Juggling credit cards is an easy way to create major debts, as the customer is making interest payments to multiple lenders. Another negative aspect can occur if the customer has trouble making the payments. One missed or late payment will usually mean a penalty fee plus accruing interest. If one monthly payment is missed on multiple cards, this can soon add up to over a £100 per month.

Entering Into High Interest Credit Card Agreements

There are credit cards available for customers with poor credit records. These cards will come with very high interest rates, but many consumers who take on these cards do so because they originally had trouble maintaining their debts. High interest credit cards can simply cause more debts for those who cannot control their spending or keep to repayments schedules. This can be another easy debt trap, although it may be the last credit card the consumer will have for many years.

Ways To Avoid Credit Card Debt Traps

When financial hard times happen it can be tempting to succumb to easy and risky credit routes. Avoiding credit card debt traps means taking financial responsibility and considering how credit will impact on future finances. There are ways to avoid credit card debt traps and these will include:

  • Avoid exceeding credit card limits so you aren't hit with penalty charges and excessive interest charges.
  • Look for debt solutions rather than considering high interest credit cards.
  • Talk to a professional debt counsellor if debts are becoming unmanageable.
  • Avoid the well-known debt traps such as payday loans, that come with exorbitant interest rates.
  • Consider how much will be taken from a salary if adding to debts with new credit cards.
  • Set up debt repayments to leave bank accounts a few days after a salary goes in, to avoid spending the repayment money.
  • Seriously assess how long into the future it will take to clear debts when considering a new credit card.
Credit card debt traps are the irresponsible lenders way of keeping customers paying for as long as possible. These debt traps are easy to fall into once debts become unmanageable, and they can last for many years. Taking financial responsibility can be hard but will help to avoid debt traps. Consumers who are having problems with debts should contact one of the national debt help agencies to receive free advice and practical help.

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