Credit card spending can quickly become a bad habit that can get out of control. Certain behaviors can end up dragging the consumer deeper into debt. It is important that the consumer identify these spending habits ahead of time and spot red flags before falling deeper into a debt trap.
Many consumers fall into the trap of only making the minimum monthly payment listed on their credit card statements. It can be tempting to make that small payment instead of paying off the balance in full or making at least a substantial payment towards the principal. However, minimum monthly payments only end up covering the interest accrued during that month. In the end, the consumer makes absolutely no progress towards paying down the balance owed, and the consumer will find that the balance never goes down. At the very least, the consumer should make more than the minimum payment on a monthly basis in order to avoid falling into this debt trap.
Another red flag is when the consumer frequently makes cash advance withdrawals through his or her credit card account. This habit can be a strong indication that the consumer’s financial habits are less than stellar. While most credit cards allow for cash advances, these withdrawals come with a cash advance fee and significant finance charges. These cash withdrawals end up harming the person’s financial health more than they end up helping it, which is why a credit card cash advance should be a last resort financial move.
When the consumer spends regularly on a significant portion of his or her credit limit, this type of financial behavior can be considered a red flag, signaling that the person is falling into a debt trap. This proportion of the person’s total credit limit is known as CUR or credit utilization ratio. A consumer’s CUR is a strong indicator of his or her overall financial health. A high CUR indicates that that the consumer dependent on credit. Lenders see this higher CUR as a strong indication that the person will be unable to make timely payments on his or her debts, making him or her a lending risk.
As bankruptcy attorneys, we see credit card debt as one of the most common problems facing those with serious financial challenges. It is not surprising with the high interest rates, unreasonable fees, harassing debt collection calls, penalties and never-ending minimum payments that do not even make a dent in your actual debt. We offer additional tips for eliminating credit card debt on our blog.
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If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.
