I can easily imagine how someone can wind up carrying a balance on their credit card via some sort of minor disaster.
What I don't understand is how a full third of the US population has managed to get themselves into that situation and not out, and are effectively borrowing money at some crazy (16%+ rate).
Some of those crazy rates come from credit card companies that have discovered that people's procrastination and forgetfulness can lead to great profits.
Miss your payment deadline by an hour? $39.99 late fee. Miss by a week? We'll crank your rate up to 29.99%. Oh, and we'll report it to the credit bureaus so they will find out and other cards you have will crank up to the default rate.
Now you've got multiple cards at the max rate. The minimum payments skyrocket. Most of that is just interest, so your principal never goes down. In fact, if you keep making minimum payments only, the balance rises until you hit the limit. It goes on and on.
There have been new laws to limit this kind of behavior from the banks, but banks are pretty clever animals. They'll find new ways to make their profit.
Most of that is just interest, so your principal never goes down. In fact, if you keep making minimum payments only, the balance rises until you hit the limit.
This is known as negative amortization, and it's not the way credit cards work. Or any loan where "most" of the payment is interest, for that matter. If you're paying any principal, you're paying down the loan. To my knowledge, credit card companies are required by law to set the minimum payment high enough that some principal is paid. Of course, it's only enough that you won't finish paying them off for twenty years, but it is amortization.
Not using the card, its gone in the shredder after I maxed it out to pay for back surgery. But without a doubt the balance goes up every month. I'm not a computer with a PDF reader at the moment but my credit card statement shows that if I continue to pay the minimum every month it'll take over 2600 years to pay off and I would have paid over 2 million dollars in interest by the time its paid off. This is for a US card as well.
Then let's clarify my hyperbole: if you make minimums, you're going to need a long long time to get out of the debt. Decades.
New laws and higher minimums are working to alleviate this problem, but if you can't make the minimum as it is, how will you do it when the minimum has doubled?
What I don't understand is how a full third of the US population has managed to get themselves into that situation and not out, and are effectively borrowing money at some crazy (16%+ rate).