Punishment for Credit Card Abuse
Credit card balances are loans that consumers agree to repay when they sign up for the card. When consumers abuse credit cards by accruing large balances on multiple cards, they leave themselves with little financial flexibility while falling further into debt. As credit card companies enforce penalties for missed payments, abusers end up paying far more than they originally borrowed. The punishments for abusing credit cards are severe, but consumers accept them when they sign the contract for their cards.
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High APR
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A credit card's annual percentage rate, or APR, is the annual percentage of your balance that you must pay as interest. Many credit cards advertise attractively low APRs with the understanding that even one late or missed payment will raise the APR to 30 percent or higher. The more credit cards an abuser acquires, the higher the risk of missing a payment and receiving the a significantly higher APR.
Fees
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Credit card abusers are at high risk of accruing punishment fees on their card balances. In addition to late or missed payment fees, credit card companies also enforce fees when consumers exceed their balance limit. If monthly interest charges and late-payment fees push your balance past the limit, you may receive an overdraft fee. For abusers living beyond their means, these fees make it more difficult to make minimum payments.
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Repossession
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Although credit card companies may simply sell outstanding balances to collection agencies, they have the right to take abusers to court and collect an outstanding balance through forced possession of assets or wage garnishment. Because lawyer fees are expensive, this process further compromises card abusers' financial stability and may push them into bankruptcy.
Bankruptcy
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Excess credit card debt impacts a credit card abuser's other financial obligations, including payments due on mortgages and other secured debts. In these cases bankruptcy may become the only viable option. In addition to the negative impact of bankruptcy on a card abuser's credit report, the process may not eliminate all credit card debt and consumers filing for bankruptcy are likely to lose most of their secured assets.
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References
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