The Dangers of Credit Card Debt and How to Avoid Them

A person entering their credit card number into a tablet to buy something online.
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Credit cards are potentially dangerous, especially for new credit card users, who may be fascinated by the allure of what seems like “free” money. Even some experienced credit card users still fall into credit card traps.

If you’re thinking about getting a credit card—or wondering whether to drop your credit card—understanding the dangers that come along with credit cards can help you cultivate better credit card habits. There are ways to use credit cards responsibly and avoid the traps that so many consumers risk falling into each day.

The Temptation to Overspend

Studies show that consumers spend more when they pay with credit cards than when they pay with cash. In one study, participants were willing to spend twice as much when using credit cards. It’s easy and convenient to spend money with a credit card, and you don’t feel the “pain” of cash leaving your wallet. It might also explain the rising rate of credit card indebtedness in the U.S.

How to avoid it: Set a personal spending limit with your credit card, even if it’s below your credit limit, based on how much you can afford to pay on your credit card each month. Be careful that you're not overspending to live a lifestyle you really can't afford or to impress people with your things.

Interest Makes It Harder to Pay Off the Balance

Paying credit card balances in full each month allows you to avoid paying any interest at all. If you’re not paying your balance in full, then a portion of each payment goes toward interest payments, increasing the amount of time it takes to pay off your balance.

How to avoid it: Pay your balance in full to avoid paying any interest on purchases. If you can’t pay in full, you may be charging more than you can afford to pay. Try to pay as much as you can each month until you've brought your balance to zero.

Risk of Getting Into Debt

Any time you borrow money, you’re creating debt. The more you borrow, without repaying, the deeper you go into debt. Debt leads to a myriad of other problems, and not all of them are financial. It can lead to stress, depression, and other health issues, all of which can have serious impacts.

Once you’re in debt, reaching your other financial goals is much harder. Spending money on debt leaves you with less money for other priorities like saving for retirement or summer vacation. You may have to delay your educational goals or feel trapped in a job you don’t like because you need to pay your bills.

How to avoid it: Recognize the signs that you’re headed for credit card debt, particularly not being able to pay your balance in full each month. Stop using your credit cards, and focus on living within your means to keep from getting in over your head.

Risk of Ruining Your Credit Score

Credit cards have a major impact on your credit score. Use your credit card wisely, and you’ll be on the way to a great credit score, but if you make a mistake—like missing a payment for 30 or more days—your credit score will take a hit. The more you mess up, the more your credit score will fall.

How to avoid it: The best way to build and protect your credit score is to pay your credit card on time, keep your balance below 30% of your credit limit, and minimize the credit card applications you make.

Minimum Payments Can Create a False Sense of Security

Your credit card issuer only requires you to make a small payment each month to avoid late fees and keep your account in good standing. Unfortunately, next to making no payment at all, minimum payments are the worst way to pay off your balance. You’ll spend more time paying your balance, and you'll pay more interest if you make only the minimum payment.

How to avoid it: Paying your balance in full is ideal, but if you can’t pay off your entire balance, pay more than the minimum to get rid of your balance sooner and reduce the amount of interest you pay overall.

Confusing Credit Card Terms

While credit card terms have become a lot clearer, thanks to the Credit CARD Act of 2009, there still is a lot of confusion with credit card offers. A single credit card can have several different interest rates, and knowing which rate applies can be confusing. Misunderstanding your credit card terms can have serious consequences—like increased fees or interest rates or damage to your credit.

How to avoid it: Understand the different types of balances you can carry on your credit card and the interest rate that applies to each. Read through your rewards program to learn which purchases earn rewards. Contact your credit card’s customer service with questions about your credit card.

It's Hard to Track Spending Across Multiple Credit Cards

Tracking your spending is a foundation of a healthy financial life, but adding credit cards to your usual spending methods can make it more difficult to keep up with all of your spending, especially if you’re using your credit cards along with cash and debit cards and if you’re using multiple credit cards. That is one of the reasons credit cards make it so easy to overspend.

How to avoid it: Using more cards means that you have to look in different places when you’re tracking your expenses. You can track them manually in a spending journal or spreadsheet, or you can use a personal finance software like Mint or Quicken to help track your spending.

Credit Cards Come With a Risk of Credit Card Fraud

To some degree, everyone with a credit card is at risk of being a victim of credit card fraud. Your credit card itself can be stolen, or a thief can steal your credit card information from a company you’ve shopped with. Fortunately, your liability for fraudulent credit card purchases is limited, but you have to report these charges quickly.

How to avoid it: Monitor your credit card often, and report a missing credit card or suspicious charges immediately.

Frequently Asked Questions (FAQs)

What is the average credit card debt?

According to consumer credit data from Experian, the average American consumer held $5,315 in credit card debt in 2020.

Can you negotiate credit card debt?

Yes, you can often negotiate with credit card companies. If you're struggling financially, your credit card issuer may be willing to work with you to cut its losses and help you avoid bankruptcy. You may be able to negotiate special payoff terms or even a balance reduction with a lump-sum payment. You should be aware, though, that the credit card issuer will likely close your account, and your credit score will probably be negatively affected.

What happens if you don't pay your credit card debt?

If you stop paying your credit card balance, you should be prepared for a series of increasingly adverse consequences. First, you'll owe a late fee and interest on the outstanding balance. The longer you go without paying off your balance, the more this interest will accumulate. Eventually, you'll be charged a penalty interest rate, which is even higher. After you're about 30 days past due, the late payments will begin showing up on your credit history and hurting your score. Then, your creditor will begin to attempt to collect the debt. After several months, they may send your account to collections, which will remain on your credit report for seven years.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Kluwer Academic Publishers. "Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay."

  2. Experian. "Average U.S. Consumer Debt Reaches New Record in 2020."

  3. Experian. "When Do Late Payments Get Reported?"

  4. Equifax. "How Long Does Information Stay on My Equifax Credit Report?"

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