Credit card debt can quickly get ahead of you and wreak havoc on your finances and credit score. No matter how high your credit limit, you shouldn’t charge more than you can afford to repay at the end of each month. When you don’t pay off your balance, you’re charged interest on the debt, and you can get even further behind.
Luckily, all you need is discipline to avoid credit card debt. Here’s a primer on how the debt grows and 10 tips to fend it off in your household.
What Is Credit Card Debt?
Credit card debt is a type of revolving debt, which means you can keep borrowing month after month, as long as you repay enough that you never owe more than a set limit. Credit card accounts can be used indefinitely, unlike installment loan accounts, which are closed once the balance is paid off.
Credit card debt is also unsecured, which means it’s not backed up by a piece of property (like your home) that can be seized if you stop making payments. Still, not repaying your credit card debt can seriously damage your credit score and history.
How You Accumulate Credit Card Debt
If you don’t pay off your entire balance by the due date each month, you’ll accumulate credit card debt. Card balances carried month to month are charged interest in the form of an annual percentage rate (APR). APRs vary greatly based on the type of card, the bank issuer, and the credit history of the cardholder.
Most credit card interest rates are variable, which means they are based on the prime rate, a prevailing rate that’s tied to the Federal Reserve’s benchmark rate.