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Bad Debt Credit Card: Benefits and Drawbacks

By: Michael Millington

Having a credit card can be a sign of having good credit. However, there are some instances when someone with bad credit (or bad debt) can qualify for a credit card. There are a few variations to the type of credit cards people with bad debt can qualify for. While some can qualify for a regular credit card with high rates, others might need to put a deposit down to open one. Bad debt can often lead to bad credit, which can limit borrowing options. Even so, there are ways to receive a bad debt credit card to help in times of need. Here we will discuss a couple.

Bad Debt Credit Card Types

There are two main bad debt credit card types that exist. One is the high interest credit card. If you have poor credit or a massive amount of debt, lenders might see you as a risk. However, instead of disqualifying you for a credit card, you might be able to get a card with a higher than normal interest rate. Those with worse credit receive higher interest rates because they might not be able to pay. A higher interest rate on a bad debt credit card can be seen as extra incentive to make on time payments. However, there are some instances in which a bad debt credit card with high interest rates can be detrimental. The main issue would arise if there were payments missed or the card wasn’t used responsibly. This could lead to a greater amount of debt accumulation and a worsening of your financial standing.

The other type of bad debt credit card is a secured credit card. These credit cards require you to make a deposit in order to complete the application process. Depending on your credit, you might have an option in how much of a deposit you make. Generally, the amount of the deposit equates to the amount you can borrow. In this way, a secured credit card is similar to a debit card. You deposit money to start and you can only use that amount. The big difference is that your credit card usage is reported to major credit bureaus. Responsible use of a bad debt credit card can improve your overall credit rating, so wise use is encouraged.

Bad Debt Credit Card Alternatives

Even though the previously mentioned cards can benefit those with exorbitant amounts of debt or poor credit, there are times when even these cards are out of reach. Should this be the case, bad debt credit card alternatives are available. Not unlike credit cards, high interest loans can be used for the same purposes. The interest rates might be slightly higher with loans because of their nonrenewable nature. This can help establish good payment patterns, but can also cause financial trouble if used irresponsibly.

Another alternative to a bad debt credit card is to rid yourself of debt beforehand. If you have large amounts of debt, your credit will be affected. Lowering the amount of debt you have will increase your credit rating. If you find yourself unable to qualify for traditional credit products, consider debt elimination first. Debt settlement, credit counseling and even bankruptcy might be able to help. Know your financial ability and make educated decisions about your finances and you might even be able to avoid these bad debt related products altogether.