Renaud Laplanche on How Not to Handle Credit Card Debt

Renaud Laplanche on How Not to Handle Credit Card Debt

For many Americans, taking advantage of the credit card offers to offset pending bills seems like the ideal solution, especially when one is hard-pressed for cash. However, the offers, as enticing as they may appear aren’t always heaven sent as you would like to believe. Many come with stringent repayment measures, a factor that can cause one to remain indebted for years.

By the time a person is getting around to repaying the full amount owed, chances are that they will have repaid more than double the amount initially owed. According to Renaud Laplanche, this is just but one of the reasons why credit card debts aren’t good for anyone. The other reasons include:

1. Getting into an Endless Cycle of Debt

Did you know that a normal American family owes as much as $8,398 in terms of credit card debts? While this figure may seem high, the reality is that the situation is only becoming dire. As unfortunate as this situation is, families can easily avoid getting themselves into this debt trap.

This calls for credit cardholders to first try to comprehend what they are signing up for, before appending their signatures onto any documents. Remember that credit card companies tend to employ opaque advertising techniques, where they only communicate an offer, without mentioning the interest rates they will charge.

Improved financial education and consumer knowledge is the way to go. Consumers need to better understand the products and offers that companies are trying to sell to them.

2. High Rates

According to CardRates.com, the average interest rates for a consumer with bad credit is 24.50%, with that of fair credit rating being set at 21.45%, and that of excellent rating being 16.90%. The interest rates attached to store cards are even higher than those offered by credit card companies.

Carrying a balance can cause a store card to become expensive. For instance, a Banana Republic card will charge you 27.49%. In addition to the high rates charged by the stores, consumers opting to make minimum monthly payments only acts to ensure that the card isn’t withdrawn. The amount owed will, however, take longer to settle.

3. High Fees

Even though the interest rates charged by credit cards are quite high, this isn’t the only cost that comes with using that card. The company will also impose numerous other charges such as foreign transaction fees, late fees, cash advance fees, annual fees, and balance transfer fees.

Merchants are responsible for paying the interchange fees, but all the other fees will come directly from your pocket. Simply put, there’s a high likelihood that your interest rates are as high as 20%, not counting the other fees charged by the credit card companies.

4. Credit Score Drags

Whenever you open a new account for a credit card, a “hard inquiry” report is automatically triggered. The report conducted on your credit score will with time harm your overall rating. Its impact is determined by what else you may have going on with regards to your score. Often, the inquiry can impact your credit score by 10 to 20 points.

Even though it’s possible to recover from the effects of a hard inquiry in no time, a credit card debt can have a long-lasting effect. This occurs when the impacts of the high utilization ratio are considered. All in all, the fact remains that credit cards aren’t the solution to your cash flow problems.

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