Economic Downturns

• Economic downturns can drive up credit-card debt at a time when consumers can least afford it. People who lose their jobs in the midst of a sluggish economy tend to pay for more of their everyday expenses with credit cards. Credit-account delinquencies also tend to rise as more companies eliminate pay increases to offset financial losses in a bad economy. Creditors may respond to rising credit-card debt and delinquencies by reducing their customers' credit limits to keep them from accumulating more debt than they can afford to repay.
  
  

Interest Rates

• You put yourself at the mercy of card issuers when you accumulate large amounts of credit-card debt. Credit-card companies often raise their customers' interest rates and fees. People who can't afford to pay off their credit-card balances have difficulty breaking free of rising rates. Cardholders can close their accounts to avoid rate increases without paying off their balances, but that may lead to another type of increase. According to the U.S. Federal Reserve Board, creditors can double the percentage of the balance used to calculate a cardholder's minimum monthly payment when an account is closed without a zero balance.
  
  

Credit Scores

• Cardholders who use most of their credit lines put their credit ratings at risk because ratings are partly based on the amount of debt consumers have. For instance, 30 percent of Fair Isaac Corporation's FICO score is based on how much debt a person owes. Credit utilization -- the percentage of debt used relative to your credit limit -- affects your credit score, and people who max out their credit lines risk lowering their FICO score to levels that prevent them from obtaining other loan and credit accounts. FICO scores range from 300 to 850.
  
  

Loan Costs

• A consumer's rising credit-card debt makes other financial products more expensive. Creditors and lenders give their best terms and lowest interest rates to consumers who have excellent credit ratings. People whose credit scores have dropped because of large amounts of debt and high credit utilization ratios typically pay higher interest rates for auto loans and mortgages, if they manage to get approved for such loans at all.