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Credit cards cause more overwhelming debt than other debts

American consumers, including many in Texas, recently reached a record-breaking level of debt in the U.S. According to some reports, consumers increased their debt by $14.2 billion in one month to add up to a total of $2.78 trillion in debt. Although this may seem like something to be concerned about, it may not be as bad as it could seem at first glance, since different types of debt are better than others. Of the recent debt increase, only 24 percent was due to credit card debt, which has been known to cause more overwhelming debt for consumers compared to education loans or other types of loans.

Credit cards may be especially harmful to a person's financial situation without them even realizing it. The reason for this is that interest rates are exceptionally high for credit cards compared to other types of debts. For example, an average 30-year fixed-rate mortgage may charge interest at around 3.5 percent. Credit cards, on the other hand, may average closer to 15 percent in interest charges.

Besides credit cards, there are a variety of other types of debts that are considered less safe by many financial experts. For example, taking on debt from a home equity loan in order to pay off credit card debt is generally considered a bad idea. A consumer could end up paying more in the long run, while also putting a family home at risk of foreclosure if that consumer cannot keep up with payments.

In conclusion, it is important to understand the terms of any type of loan or debt which a person takes on in Texas or anywhere else. However, even with careful planning and advice from financial planners, a person may become buried by overwhelming debt. In this situation it may be necessary to file for bankruptcy, which can help with discharging many types of debts while also reorganizing other debts into more manageable payments.

Source: Daily Finance, "Year-End Debt Checkup: Make Sure Yours Is Healthy Debt," Selena Maranjian, Dec. 24, 2012

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