You’ve heard it before. Avoid credit card debt. Live frugally and below your means. Save 10% of your income every month. Build up an emergency fund. Although we hear these tips over and over again, why is it that so many people find themselves in tons of credit card debt, on the verge of filing for bankruptcy?

Credit Card Debt

Unfortunately, many of us have been programmed to participate in this modern day culture of over-consumption, and the need to keep up appearances with our peers, i.e., lifestyle inflation. This leads many of us to live above our means, spending every dollar we make to sustain our inflated lifestyles, and then financing all other purchases using credit cards that often come with absurd interest rates. Many of these purchases are frivolous, such as luxury cars, fancy clothes, fine dining, and exotic vacations.  At this point, we are in danger of defaulting on loans and needing to file for bankruptcy. We tend to think that as long as we pay the minimum payment on our credit cards on time every month, we will be able to sustain this kind of lifestyle. This can all come to an abrupt end if an unexpected drop in income occurs, such as a job loss. With a job loss, and the inability to pay your debts, you put yourself at a high risk of having to contact a bankruptcy attorney, and filing for bankruptcy to start over.

Maxing out credit cards to support an inflated lifestyle, and paying just the minimum payment each month is a dangerous game. Most, if not all, of the monthly payment will be going toward interest, and not paying down the principal of the balance. Additionally, if you somehow find yourself unable to make the minimum monthly payments due to income loss, your balances will skyrocket, your credit rating will suffer, and collection agencies will begin calling non-stop. Your wages might be garnished, and your home might be repossessed.

The only way to start over at this point will be to file for bankruptcy. A bankruptcy attorney in your area will be able to help you through this process, but the idea is to avoid getting to this point by eliminating all credit card debt. Credit cards can be a useful tool for getting cash back on purchases, but the only way this makes sense is if you pay off the entire balance each and every month to avoid any interest charges. Only then will you be able to see any benefit from cash back. Any interest you pay on your balance will completely offset rewards.

The solution is simple. Live below your means. Eliminate credit card debt each month by paying off your entire balance. Build up an emergency fund by saving at least 10% of your income every month. When you do these things, you have a better chance of avoiding either a chapter 7 or chapter 13 bankruptcy. If you find yourself in too much credit card debt with no way to get out of it in the foreseeable future, your only option may be to speak with a bankruptcy attorney in your area to discuss your options. A bankruptcy attorney will help you to eliminate your credit card debt, stop the collection calls, help start to rebuild your credit, and get you on a path to more financial security.

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