How Long-Term Credit Card Debt Could Hurt Your Financial Life

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You could lose significant money while repaying a high-interest debt over the years. Pexels

Getting a credit card is easy. Swiping it is even easier. However, if you rack up a huge credit card debt, getting out of it could turn into a financially and mentally hectic job for the average American household. The average interest on credit cards is above 20 percent and paying the monthly minimum of one or two percent of your total outstanding debt could take years before you finally become debt-free.

Credit card balances rose by $17 billion in Q3 2021, and the average debt in 2021 stood above $5,500. When you are stuck in a vicious cycle of credit card debt repayment, you increase the probability of missing payment deadlines, negatively impacting your credit score, getting slapped by exorbitant late fees charges, and possibly delaying your financial aspirations for years.

It is no secret that mass unemployment, business shutdowns, and unplanned retirement during the pandemic wreaked havoc in the lives of millions. A report from the Center of Budget and Policy Priorities for data collected between September 15 to October 1, 2021 revealed that one in six renters are yet to catch up on rent, while one in four adults are struggling to cover household expenses.

As Americans look forward to rebuilding their finances, it is important to also come up with a well-planned strategy to get rid of credit card debt and to only swipe when absolutely necessary. One of the most painful consequences of getting stuck in a credit card debt cycle is that you lose an enormous amount of money in interest and end up paying much more than you borrow.

A credit card debt repayment calculator from Bankrate estimated that if you have $5,000 in debt as of now and pay monthly minimum payments of $100 each month at an interest rate of 20 percent, it could take you decades to repay the loan. In this life-draining process, you'll be estimated to pay an interest amount of a whopping $17,535.

Furthermore, if you have missed several credit card payments or paid late; your lender might report it to the credit bureaus, and this could tank your credit score. When your credit score dips, it could take months and even years to recover those lost points. Moreover, a low credit score could lead to loan rejections, high insurance premiums, and even affect your job and tenant applications.

Create a Debt Repayment Plan With the Help of Artificial Intelligence

Before anything else, you need to understand the mathematics involved and see how much you can squeeze out of your monthly budget towards credit card payments. Once you have settled on a figure, try to prioritize credit cards with the highest interest rates and largest outstanding balances, and keep paying the minimum for those with lower interest rates or balances. This technique is called the Avalanche method and is quite useful if you are looking to expedite your credit card loan repayment journey.

One fintech company called Tally can help you convert all of your credit cards into a single card and lower your monthly interest through their app's low-interest line of credit. Signing up on their intuitive app is free, and you will be able to link your credit cards through their secure channel protected by 256-bit military-grade encryption. Their proprietary technology will then look into your debt situation and offer a personalized debt repayment plan with a projected debt-free date, given that you make the recommended payments in a timely manner.

If you have a FICO credit score above 660, you may avail of Tally's low-interest credit line starting at 7.9 percent. Tally will then transfer all of your credit card balances to your new line of credit and make monthly credit card payments following the Avalanche method on your behalf. You will only pay Tally monthly in one consolidated bill at a low interest rate and save money on interest from your next billing cycle. Tally will not get in touch with your creditors or take over your credit cards, but will simply give you a revolving line of credit at a lower interest rate. This will give you some breathing space and allow you to get ahead of your fears of missing payments deadlines and staying stuck in debt for a long time.

Tally's Late Fees Protection program saves you from getting slapped with high late payment charges if you fail to make payments within your deadlines. Although Tally will give you reminders well in advance, there could still be months where it might be financially difficult for you. In these cases, Tally will make the payment to your creditors on your behalf and you can simply pay Tally later. In the process, you will be able to protect your credit score from any kind of negative influence.

Once you are debt-free, you can then choose to keep this low-interest line of credit with Tally and use it as a credit card without worrying about high fees and interest charges.