THE BLOG
05/17/2013 10:26 am ET | Updated Jul 17, 2013

Who Is to Blame for the Nation's Crippling Credit Card Debt?

The nation has crippling credit card debt to the tune of almost $800 billion. This is obviously not a minor problem, but a financial epidemic. Americans are paying so much in fees and penalties each year that we may never dig ourselves out.

So who's the blame? Most would blame the credit card companies. Without credit cards, we wouldn't be tempted to spend all of this money, right? In reality, we are using the credit card companies as a scapegoat for our own poor spending habits. Do the credit card companies engage in some shady practices? Sure, but those practices pale in comparison to how average Americans misuse their credit cards.

How We Misuse Our Credit Cards

Most American's use their credit card as an extra source of income when they want to buy something but can't afford it. That may sound like an unfair generalization, but keep in mind that 52 percent off Americans end up spending more than they make at least a few months out of the year. That means over 160 million people are spending more than they make. This is how we get into credit card debt.

And it's not just our spending habits. We also tend to have a poor relationship with our credit cards. Instead of paying off our balance every month, we end up accumulating hundreds, if not thousands, of dollars in penalties and interest each year.

Let's put this in perspective with a few telling statistics. We, as a nation, pay around $22.5 billion a year in credit card penalties. These are penalties that credit card companies charge for making a payment late or going over your credit limit. Both of these penalties are put in place so that you are encouraged to limit your spending, not increase it. This is the best case of user error I've seen when it comes to how we use our credit cards.

Also, 46 percent of Americans don't pay off their full balance each month, which means they are paying interest on their credit card. That's like throwing money down the garbage disposal. Even worse than that, 36 percent of Americans don't even know the interest rate on their credit card, meaning they aren't aware of what they are paying in penalties.

How Credit Cards Could Actually Save Us Money

Credit cards were not designed to be an extra source of income for us. In addition to convenience, they were actually designed to save us money by allowing us an extra interest-free 30 days to pay for things we buy. Credit card interest rates were meant to provide a stiff penalty for those who didn't pay their balance on time while still being reasonable enough to allow for those emergency situations when you need a quick band-aid for a financial misfortune. While we should still look at credit cards in that light, they have grown to be an even more useful tool in helping our financial health. If we use that tool properly - by paying off the balance each month - we could actually be saving money instead of deep in debt.

Rewards: A majority of credit cards these days come with some kind of reward, whether it be cash back or travel benefits. If you are using that card for your monthly expenditures (let's say $10,000) and you are getting 2 percent cash back, you end up earning $200 that you didn't have before. If you are paying off your balance each month, that's an extra $200 a month that goes right into your pocket.

Lower Interest Rates: If you are using your credit cards responsibly and paying it on time each month, you probably have a pretty good credit score. Your credit score dictates what kind of interest rate you are offered or how much your credit limit will be. Many lenders have score cutoffs for certain rates or credit limits. If your score is 696 and their cutoff is 700, you will be missing out on the better interest rate by only 4 points, which means you will be paying extra interest for no reason. And of course, it will also give you the best chance at getting that credit card or loan in the first place.

More Financial Freedom: Say you have a financial emergency and you need to put $10,000 on a credit card, but you won't be able to pay it off right away. Instead of racking up crazy amounts of interest on your credit card, you can apply for a balance transfer credit card with an introductory rate of 0% for the first 12-18 months. That way you have up to a year and half to pay off that balance without interest. But you can only get approved for such a card with good, solid credit. Same goes for loans or any other last-minute financial hoops you might need to jump through.

The bottom line is that having credit cards and using them correctly can actually improve your financial stability by leaps and bounds.

So What's the Solution?

Let's be real, we aren't going to fix all of our money problems overnight. Unemployment and recovery from the recession are making it difficult to crawl out of credit mess we've put ourselves in. However, there are a few simple ways that we can start to dig ourselves out. First, start paying off as much of your credit card debt as you can. If you can get a balance transfer credit card with a zero percent introductory APR, take advantage of that to get ahead on your debt. And find a credit report monitoring service that you like to help you keep track of your credit, so you can fix any mistakes that pop up on your credit report.

And above all, stop paying those late fees and over limit fees. They just aren't worth it.