What is the Big Deal about Credit Card Debt Reduction?

It is virtually impossible to open a financial report, or visit a website dedicate to the economy, and not see an ad or an opinion piece dedicated to the reduction of consumer credit debt. You might have begun to ask yourself what the big deal about credit card debt reduction really is. After all, getting a credit card is simple, and using it is even easier. Best of all, it comes with a seemingly manageable monthly minimum payment that makes repayment of the debt a snap.

Of course, the latter is a misconception. Just like mortgages and auto loans, credit card indebtedness is a serious fiscal obligation that can make or break your overall financial health. What is more, since it is so easy to rack up a staggering amount of consumer credit card debt, this is an indebtedness that has the potential of getting out of hand quickly and rather permanently. It is at this juncture that the fallacy of the easy minimum payment comes to the forefront: covering barely more than interest, these minimum payments due leave the principal balance untouched and virtually in existence indefinitely.

Reducing credit card debt is instrumental not only in reducing your consumer debt overall, but also reducing your debt to income ratio. You might not consider it on a daily basis, but the debt to income ratio determines if you will be able to take out a mortgage loan or car loan, and if so, what kind of interest rate you will be expected to pay. A high debt to income ratio turns you into a poor credit risk, and subsequently your cost of the credit will be higher. Conversely, if your debt to income ratio is lower, you appear to be a good credit risk, and most likely qualify for a lower interest rate.

You may also find that adverse financial events in your life make it hard to stay on top of even the supposedly easy minimum monthly payments associated with credit cards. This then leads to past due accounts, late fee charges, and of course a sudden hike in your credit card interest rates when your now past due accounts reset to a default rate. Add to this the fact that these payments virtually make no dents in your debt, and it soon becomes obvious that credit card debt – unlike any other form of indebtedness – hangs around your neck like a proverbial albatross.

Even the notion that credit cards are perfect for emergency situations pales when you consider that a card which is run up and maxed out cannot provide any emergency benefit. What is more, the loans you now do not qualify for in order to deal with the emergency may be the very loans you might have needed to handle the situation at hand. There is truly precious little doubt that credit card is the one kind of consumer debt you can do without, and getting rid of it sooner rather than later is a worthwhile endeavor, and the sooner you get started, the sooner you will experience financial freedom.