Credit Card Debt

A type of unsecured liability which is incurred through a short-term revolving loan facility. While, technically, all purchases made by credit card create a debt to the user, these debts typically do not incur interest until the grace period has expired. Thus, credit card users who pay off their balance each month are generally not considered to have credit card debt. Rather, the term applies to users who continue to carry a balance on their credit cards after the grace period has expired and the debt begins to bear interest.

Although credit card debt is widespread, its high interest rates make it one of the worst types of debt. Credit card users who carry a balance do not have a grace period, so interest is charged on new purchases immediately. Credit cards often encourage users to pay only a small minimum payment, promoting the use of the card as a longer-term loan. However, many financial experts advise paying off all credit card debt as an early step to improving one’s financial situation.