Young people tend to be careless with their finances. Whether because of lack of education, lack of experience or a general sense of invincibility, young people often find themselves in debt that they have difficulty repaying.  Credit card debt is a problem for many college students.  During welcome week at many college campuses, credit card companies aggressively market their services to incoming students.  Eighteen year olds, away from home for the first time, are lured in with free pizza and a slick spiel about the benefits of “building credit.”

When an inexperienced individual first uses a credit card, it appears that the money is simply available to them to use as they wish.  They don’t realize that every swipe of the card is actually an interest-bearing loan.  It appears to be found money.  It is anything but that. 

Credit cards often come with initial interest rates that are low or zero percent.  Often, however, the rate increases dramatically after a short period of time.  It is not uncommon for a credit card to have an introductory interest rate of zero percent that becomes nearly twenty percent after the first year.  Most credit cards offer minimum payments that are a fraction of the outstanding balance.  Inexperienced users fail to realize that making the minimum payment each month often does nothing to chip away at the outstanding balance.  So, they fall further and further into debt without really understanding what is happening.

When the credit card user misses a payment, they are in breach of their credit card agreement.  At that point, the credit card company usually has the right to charge late fees and other additional charges to the account.  Often, the company has the right to charge a default rate of interest which is usually mush higher than the standard rate of interest for the card.  The credit card company also usually has the right to accelerate the debt, or to take away the user’s right to make minimum payments, and instead demand that the full balance be paid.  If the user fails to make payment on demand, the credit card company has a legal right to sue in court for the user’s breach of the credit card agreement.  When factoring in court costs, fees, interest and other charges, the resulting court judgment is typically much greater than the underlying debt.

In an increasingly cashless society, credit cards and other forms of electronic payment are effectively unavoidable for most people.  Just try living one month without entering into a single electronic transaction.  However, when a transaction does not involve cash, it is easy to misunderstand the terms of the transaction.  So, to avoid getting in trouble when using credit cards, it is important to plan and account for monthly income and expenditures.  It is easy to swipe a card.  It is often difficult to pay the resulting bill in full.  

— Kassem Dakhlallah is a partner with Jaafar & Mahdi Law Group, P.C.  His practice focuses on complex litigation, including class actions, representative actions, commercial litigation, civil forfeiture and personal injury. He can be reached at 313.846.6400 and kassem@jaafarandmahdi.com.