Credit card debt is something that many people deal with on a daily basis. While many people try to manage their credit cards adequately, they fall into the trap of hidden fees and high interest rates---resulting in unaffordable monthly minimum payments. While many people never sign on with a credit card company with the intention of defaulting or not paying off the balance, fees and overages take over and they fall behind.
Percentage Rates
One of the biggest problems with many credit cards, especially department store cards, is the high annual percentage rates. Rates can reach 30 percent and higher. On creditcard.com, popular cards like Discover and American Express will attract customers with a zero percent or low interest rate for the first six to 12 months. Many card applicants do not read the fine print. After the introductory offer is over, the card's rate skyrockets, increasing the balance if it isn't paid off in the introductory time frame.
Annual Fees
Some cardholders don't realize the fine print when applying for and accepting credit card offers. Many credit cards with lower interest rates or incentives actually have hidden annual fees. These fees can be upward of $100 per year. If the cardholder does not budget in the annual fees, she may see herself going over her credit limit, causing an additional charge to the account. This can make payments higher and negatively affect a credit rating.
Late Fees
A big problem with many credit cards is late fees. Each bank and credit card company is different. Even if the cardholder has every intention to pay the balance on the due date, the payment can still be considered late if not paid before the due date. The confusion about when to pay generally arises if paying online or over the phone. Some credit cards allow you to make your payment the day it is due with no additional fees. Other credit card companies require three to five days of processing before the due date. Even if you make the payment a day or two in advance, it will still be considered late---thus negatively affecting your credit rating. They may allow you to rush your payment over the phone or online, but for a large fee. If mailing in your payment, be sure to send the envelope out at least 14 days in advance to assure it reaches the credit card company before the due date.
Spending Habits
People who spend money on their credit card and are not able to pay off the balance at the end of the month may have a problem with overspending. Credit cards are designed to be used as a way to manage money, for emergencies, for credit-card-only transactions such as reservations and online ordering, and to maintain a high credit rating. Credit card holders who spend a great deal of money and go over the credit limit will find themselves faced with over-the-limit fees, making it more difficult to pay off the balance on the card.
Credit Scores
One important aspect of carrying a credit card in your name is that it has a direct reflection on your credit score. Your credit score or FICO score gathers information from your credit report. Credit card companies report your balance, the age of your account, credit line and payment history to the credit reporting agencies---Experian, TransUnion and Equifax. If you carry a high balance and only make minimum payments, your FICO score will go down. If you are late on your minimum monthly payments or have defaulted on your credit card, a negative history will be reported.
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