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Why is it a bad idea to build up credit card debt?

Credit card debt is something most Americans have. Of course, many have it to help build up their credit scores or to fall back on in an emergency. Credit card debt is considered to be a bad debt, though, and for good reason.

Credit cards often have low monthly payments, but as a result, you end up paying on the card for many years before you ever pay it off. Add to that the fact that most cards have a high annual interest rate of 15, 18 or even 25 percent, and you can see how those low monthly payments fail to make a dent in the debts you accrue. Since the debts grow rapidly, it's not advisable to make large purchases on a credit card unless you intend to pay it off in one or two months. For larger purchases, small loans or other options may be a better choice.

Good debt is generally defined as debt used to purchase appreciating assets. Mortgages, for instance, are considered to be good debt because you buy a property that has the potential to grow in value. Educational debts are considered to be good debts, since they get you the education you need to find a better job. Credit debt doesn't do this. It's usually used to buy assets that depreciate, like computers or clothing items.

When it comes to debt, the best way out is to only spend what you can pay off each month. That's not always possible, so knowing what each kind of loan or credit card provider offers helps you make better financial choices. If you're in over your head, you're not alone. Your attorney can help you look into options like debt consolidation or bankruptcy.

Source: Nerd Wallet, "Why Is Credit Card Debt ‘Bad’ Debt?," Erin El Issa, accessed March 09, 2017

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