Credit cards can become a debt trap when balances grow

American families owe an average of $5,700 to credit card companies according to industry data, and the figures suggest that people tend to accrue increasing amounts of revolving debt as they grow older. While credit cards provide Florida consumers with a convenient way to defer the cost of large purchases, they can become ruinously expensive when borrowers are only able to make their minimum monthly payments.

The problem with minimum payments is that they are made up almost entirely of interest, and it can take decades before balances are paid off. Credit card interest rates are often 20 percent or higher, and consumers making only minimum payments may end up paying more in interest charges than they did on the original purchase. Paying interest each month on credit card balances also deprives borrowers of funds that could be put to far more productive uses.

A monthly deposit of just $50 into a retirement account paying an annual rate of 7 percent would become a $25,000 nest egg after 20 years, but individuals who fall into the credit card debt trap are rarely able to devote much to savings. High levels of revolving debt can also negatively impact credit scores even when consumers make their payments on time. Debt ratios are an important component of credit scoring algorithms, and banks generally see large amounts of unsecured debt as a possible sign of financial troubles to come.

Individuals or families who carry large credit card balances may be extremely vulnerable to financial setbacks. An injury, illness or layoff can make it extremely difficult to cover even the minimum payments required, and creditors generally waste little time before passing delinquent accounts on to debt collectors. Attorneys with experience in this area could explain how filing for personal bankruptcy could provide relief from unmanageable levels of debt, and they could also point out that all collection efforts must cease at least temporarily when petitions are filed.