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Debt Consolidation Facts

1. If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will identify you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (Fair Isaac).

2. If you miss 1 or 2 payments on your credit card debt, the issuing company will skyrocket your interest rate to a whopping 27% - 30%!

3. Out of a random sample of 3 million American consumers (included in Experian's National Score Index), 51% of them have at least 2 credit cards and 14% of them have 10 or more credit cards.

Nine Common Causes of Credit Card Debt

If you’re finding your credit card debt spiraling out of control, you’re not alone.  Across the country, millions of people are getting stuck in the seemingly endless cycle of debt stemming from misuse of their credit cards.  From overspending to covering medical expenses, people rack up debt on credit cards for a wide variety of reasons.  But, often, many of these reasons are really avoidable mistakes that lead to the burdens of debt. 

Listed below are nine common causes of credit card debt today, along with simple solutions to help you get out of debt and get on the road to financial freedom. 

Video: Suze Orman - Why Do We Need Credit Cards?

1.  Maintaining expenses on a reduced income

One of the most common causes of credit card debt is excessive spending.  This is especially true if you continue to make charges after experiencing a reduction in your total monthly income.  If you don’t trim excess costs to match your new income, you could easily find yourself doubling or even tripling the monthly charges you make on your credit card(s).

Creating a new budget (or adjusting your existing one) is a quick and effective way to get your spending under control.  When you make a budget, you will be able to see exactly how much money you have each month and also what you’re spending it on.  You’ll be able to cut out any unnecessary expenses and adjust your spending to fit in with your newly reduced monthly income.

2.  Not saving or saving too little

Contributing regularly to savings account(s) is an important part of money management.  If you’re contributing very little or no funds to savings, you will likely reach for your credit cards to cover any unexpected or emergency expenses.  This is a common mistake that can easily cause you to rack up credit card debt.

credit card debt

One easy way to reverse this problem is set up an automatic monthly transfer from your checking account to a savings account.  With the automatic transfer, you won’t have to worry about remembering to set aside funds each month.  The savings contributions will be taken care of for you, and in an emergency, you won’t have to add charges to your credit cards.

Video: Dave Ramsey - How to Attack Debt

3.  Poor money management

One of the most general financial mistakes is also one of the easiest to make.  Money management consists of everything from monthly budgeting to bill paying to savings and investment contributions.  Dropping the ball in one area will likely cause control of your finances to slip out of your hands.  For instance, if you miss paying your monthly credit card bills, you will be charged high late fees at substantially higher interest rates.  Missing payments can also hurt your credit scores and your ability to open additional lines of credit.

Like in the second point of this list, consider setting up an automatic bill pay transfer to take care of your monthly payments. This will ensure you never miss a payment, and you won’t have to worry about remembering to pay all your bills each month.  Also, keeping a calendar (electronic or hard copy) for when your payments are due is another effective way to keep on top of your due dates.

4.  Overspending

Spending too much on things you may not really need is likely the most common cause of amassing credit card debt.  In America today, we live in a consumer culture, with glittery advertisements beckoning us to buy, buy, buy around every corner.  Sometimes, it can seem impossible to resist taking out that credit card and swiping it through to get what you want.  But spending beyond your means will cause you to quickly become buried in debt.

To curb overspending, make a budget of your necessary expenses each month.  And, most importantly, stick to it!  Identify expenses that you don’t really need each month and eliminate them.  Before you make an impulse buy, ask yourself, “Do I really need this?  Or am I just spending money to spend money?”

5.  Medical expenses

credit card mistakesUnforeseen medical problems happen every day without warning.  There’s no way to predict when such problems will or will not occur.  Because of that unpredictability, paying medical bills on credit cards is one of the most common ways to get trapped in debt.

Maintaining an emergency savings fund is one of the most effective ways to protect yourself from unexpected medical bills.  These bills may be unplanned for, but they are unavoidable.  When a problem arises, though, you will be able to draw from the emergency account to pay for the bills instead of racking up credit card debt. 

6.  Relying on credit cards as “extra” income

With the ease of use of credit cards, it can be easy to think you have additional funds in your wallet.  However, credit cards should not be looked upon as extra income.  Relying on credit cards to meet your monthly purchases and make ends meet will lead you down a slippery road into credit card debt.  When using your credit cards, remember that, if you don’t have enough cash to pay for what you’re charging, then you don’t have enough to pay for what you’re buying!  Remembering this simple rule every time you go to use your credit card can help you from amassing credit card charges and will also help to judge whether or not you really need what you want to buy.

7.  Lack of communication within your family

Perhaps you are frugal and money conscious and always careful not to overuse your credit cards.  But your partner or spouse (or children) may not be in tune with your views.  Your family members could be accumulating high amounts of credit card debt while you are trying to save and be financially responsible!  Their reckless financial behaviors can affect your credit score and overall financial situation.

If you think you may be out of sync financially with other members of your family, start talking with them about the situation.  It’s important to be open about how everyone is contributing to the monthly expenses.  Consider starting monthly family meetings to talk about your financial situation and how you can all get on the same page with your financial goals.

8.  Loss of employment

In this time of economic upheaval, thousands of people are becoming unemployed each day.  Finding yourself suddenly without a job can be one of the scariest situations to be in.  If you’re having difficulties securing a new job, making ends meet each month can be even scarier.  It can be very tempting to reach for your credit cards to cover your monthly expenses.  But before you do, make sure you’ve exhausted all your other options first.  Have you applied for unemployment compensation?  Have you been pulling funds from savings and emergency accounts?  Have you considered asking family members or friends for short-term help?

9.  Too much credit card use

With the simplicity of using credit cards, it can be very easy to reach for one each time you make a purchase.  Rather than fumbling with cash or writing a check, it’s much quicker to just pull out a credit card and swipe your payment through.  But getting into this habit is one that will quickly lead you into debt.  Consider having the exact amount ready in cash in your wallet before you make a purchase.  Being prepared for what you are going to spend will make you more aware of how you are going to pay for it when the time comes.