How credit cards can trap people in debt, and how bankruptcy can help

On Behalf of | May 1, 2024 | Bankruptcy |

Most modern households can’t balance their budgets without credit cards. Credit cards provide people with spending power in between paychecks when they may not have enough cash on hand to repair their vehicles or buy groceries.

When used very carefully, credit cards can be beneficial. However, they can quickly become a source of financial strain if the balance owed carries over from month to month. People may eventually find themselves struggling to handle their basic financial needs and contemplating different ways of handling their credit card debt.

Why does credit card use often lead to serious financial stress, and how can bankruptcy help those dealing with high credit card balances?

Credit cards are debt-generating instruments

From a lender’s perspective, the best credit card users are people who regularly charge just a bit more than they can pay off each month. These people carry a higher and higher balance over time. Their use of credit cards may then start generating fees, including over-limit fees and late payment fees.

Sometimes, credit card providers convince people that making a balance transfer by moving the amount owed from one company to another is the ideal solution to credit card debt. However, balance transfers often have special introductory rates that can lead to a sudden surge in interest owed if a borrower doesn’t pay the amount back in full by a specific date. The high interest that accrues on the account can also quickly add up to hundreds of dollars.

Credit card consolidation can also push people further into debt. Settlement of credit card debt often means closing lines of credit while taking on new debt, which can worsen someone’s credit score and finances.

How bankruptcy can help

Unlike a balance transfer, which just moves debt from one lender to another, bankruptcy leads to a discharge. A successful bankruptcy filing eliminates the obligation to repay a creditor in the future and prevents future collection activity on the discharge debts.

Unsecured debts, like credit card balances, are often eligible for inclusion in personal bankruptcy filings. People can eliminate their credit card debt and other insurmountable financial obligations, like medical debts. People can also file for bankruptcy as their last line of protection against aggressive collection activity, like a lender lawsuit.

Adults who recognize that their credit card balances have spiraled out of control or who face aggressive collection efforts may want to consider a personal bankruptcy filing as a way of resolving their debt issues. Discharging unsecured debts can help people rework their budgets and avoid accruing too much debt again in the future.