Bankruptcy and the High Cost of Credit Cards

Think of credit cards as a double edged sword - while offering great convenience as well as many other advantages, credit cards can at the same time be very costly if used carelessly. That is, if you opt to carry a balance from month to month rather than paying the balance off at the end of the month, you will pay a steep price in interest charges.

Let's take an example of a credit card with a typical interest rate, say, of 18%. If you choose to make no more than the minimum monthly payment (typically 2% of the total balance) on a $2,000 balance, it will be more than 30 years before you pay off the card. During this time, you will pay nearly $5,000 in interest over and above the original $2,000 you charged on the card. And that's even if you have not a single additional charge on the credit card. Few users of credit cards fully appreciate how paying only the minimum monthly payment can result in 30 years of indebtedness.

Whenever possible, then, you should make every effort to pay your bill in full every month. If your current budget leaves you unable to do that, then at least try to pay more than the minimum monthly payment. Using the same example, if you were to steadily pay $40 a month on the same initial balance of $2,000 (even though the minimum monthly payment would become less as the balance declined), you would reduce the time required to pay off this debt from 30 years to under eight, reducing at the same time the amount of interest paid from nearly $5,000 to well under $2,000.

Interest charges are of course not the only cost associated with credit cards. Again, if not used with proper caution, a cardholder could incur any of the following additional charges or fees:

Late fees - the fee assessed if your monthly payment is not received by the credit card company until after the due date.
Additional cardholder fees - a fee imposed for the privilege of a second credit card requested for another person, such as a spouse.
Cash Advance fees - fees assessed for taking cash advances on your credit card.
Annual fees - a charge imposed for the privilege of having the card.
Balance transfer fees - fees charged for a transfer of the balance of one card to another card.
Over limit fee - the monthly fee assessed for charging in excess of your pre-established credit limit.
Universal Default Clause - a special provision allowing your credit card company to increase the interest rate on your account, even if you have never been late on a payment to that company, if your credit report reflects a delinquency on an account with any other lender!


Studies have shown that the reasons most commonly cited for filing bankruptcy are divorce/separation, loss of income/failed business, injury/illness/medical, and, most common of all, overspending. With regard to the 'overspending' category, it should be noted that the typical bankruptcy filer's actual initial expenditures do not generally cause the need for bankruptcy. Rather, it's usually the interest and various other charges, as described above, that, when added on to the initial purchases, become too much for the cardholder to keep up with. So before you go out and make that next credit card purchase, beware the many potential costs of credit that, if not carefully avoided, could have you consulting with your local bankruptcy attorney.

David Romito is an Attorney based in Pittsburgh, PA. He handles Chapter 7 Bankruptcy matters in the Western District of Pennsylvania. For more answers to your Chapter 7 Bankruptcy questions, please visit his website at Pittsburgh Bankruptcy Lawyer