Debt and credit are linked and dangerous for consumers. It is so easy to build up debt through credit cards. Don’t forget other personal loans along with car loans and mortgages. There seems to be no end of credit available to consumers. Credit cards are one of the worst. Every week we seem to receive a free application for a credit card. Or we are at a store and they are trying to persuade us to sign up for the store credit card.
Debt is money you have already spent and owe to someone. For many consumers this usually means credit cards. Some consumers will have as many as six or seven or even higher number of credit cards. Each of these credit cards has a Credit card debt limit. This is the amount of money that you can charge to the card. Let’s assume a round number of $5000 that can be charged to each of these credit cards. If you have six credit cards. As a result that could mean if they’re all charge to the maximum a total debt of $30,000. Each one carrying an interest rate of 18% or higher on any unpaid balance.
Credit is money that is not yet spent, but some companies, usually credit card companies will approve a credit card in your name with virtually no checking. Most people use a credit card and pay the balance on the statement due date each month. Subsequently the Credit card company will often increase the total limit on the card by a few thousand dollars. Next thing you know you have a credit limit that is much higher than when you signed up.
Credit represents potential debt and this is where the number of credit cards that you hold can really affect your overall credit rating. Even if you do not use the cards and have them only for emergencies, if you have many cards with high credit limits this represents potential debt that credit rating agencies take into account.
Holding many credit cards represents a lot of potential debt and effects your credit rating negatively. This could impact being approved for a personal loan, or obtaining a loan but with a higher interest-rate. If you have a lot of credit cards take a few minutes to examine how many you have and what the total credit limit is on all of these cards. You may want to consider closing a few of the cards to
lower your total potential credit limit. It could take up to six months to a year for this change to be reflected on your credit report.
It may be frustrating to learn that cancellation of a credit card may take as long as a year to be reflected on your credit rating. At least you’ve taken the right step to manage your debt, your potential debt and your credit rating. It will pay off in the years to come when you apply for a mortgage, a Car loan, or a personal loan for renovations to your home or some other expense.
The benefit will be in lower interest rates. This means lower overall cost for borrowing money and an easier application process. With an excellent credit rating you should have no problem in applying for and being approved. The personal loans or mortgages should be at very competitive interest rates.