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Is credit card debt a problem?

Credit card debt is one of the more dangerous types of debt. Unlike a mortgage, where you know you are taking out a loan with a long, long repayment period, often 30 years, when you take out a credit card, it may cost you nothing. And if you don't use it, it still costs you nothing.

And when you do use it, the debt may seem minor, unlike the massive amounts residing in a mortgage. You probably can pay off the balance in its entirety. Perhaps you in fact practice this behavior, and avoid interest charges. 

What if you take a vacation, and charge a significant amount, and then plan to pay off that debt in equal, monthly installments. You plan to have it paid off in three- or six-months. But what happens in you are injured in an accident that isn't covered by your car insurance or workers' compensation at work?

Worse, maybe the injury leaves you out of work for a few months. With no income, you can't pay your now growing credit card debt or your medical bills. That vacation that seemed so reasonable and affordable, now seems extravagant.

While extravagant spending may cause some bankruptcies, in reality, it is much more prosaic events, like losing your job or an injury that causes unexpected medical bills that can be the tipping point for many people who end up in bankruptcy court filing a Chapter 7 or a Chapter 13.

Limiting your use of credit can help prevent a financial crisis or bankruptcy, but it is no guarantee that you will never need the services of a bankruptcy attorney.

Source:, "Vacations tend to come with baggage: Credit card debt," Anita Balakrishnan, June 29, 2015

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