Credit card is any card that issued by banks, savings and loans, retail stores, and other businesses that may be used repeatedly to borrow money or buy products and services on credit. It gives credit card holder protection for their purchases, allow them to shop on line, and provide a cushion in case of emergencies. Many people like to use it when they didn’t have enough cash on hands and this made the numbers of credit card debts increase until create the major problems of bankruptcies each year. This is because many people never realized of its consequences of financial and non financial perspectives.
While credit card debt is an example of unsecured consumer debt that accessed through credit cards. Debt results when consumer purchases an item or service through the card system. Debt will be accumulates and increases via interest and penalties when the consumer does not pay the credit card company for the money they have spent. And the late payment penalty itself will increase the amount of debt that the consumer has.
Factors that causes credit card debt
Poor money management is the biggest factor that causes people have accumulated many credit card debts. This is because people are not aware to conduct a monthly spending plan that planning of how much money they going to spent and also do not keep monthly bills or receipt for recording of how much money are left. They also never realized their spending on the items that are useless and do not have any value in their life. As a result, they may be overspending hundreds of dollars each month and end up having to charge purchases on which you should have spent that money. This is because people like to keep on spending with using the credit card without perceived that they are unable to pay back the debts.
Unemployment is the most common factor that causes credit card debt due to the recession of economies. Many people are losing their job and unable to maintain their living expenses, therefore they using the credit card to cover their future living expenses. For examples, households are forced to use credit card for their daily expenses purposes such as groceries and utilities in order for them to maintain their current lifestyle. This is because the main breadwinner of the household has loss his job and could not find a new job for short periods. This may lead to a rise in debt if expenses are not cutting down to cover the reduction in income.
Furthermore, people having credit card debts simply because they do not prepare any money for unexpected expenditures through saving. This is because they using credit card and like to use it for their spending and thereafter left no money to save in the bank. It sounds hardly for them to manage their saving account as they spending their money more than what they have receive. Therefore, without a savings cushion in place, a job layoff, illness or divorce will cause an immediate financial strain and increase in debt.
Moreover, credit card will become one of the sources of funds to pay off the medical expenses if health insurance is not adequate to cover the medical bills due to one of your family members suffers serious illness. This is because the medical industry wants people to make payment at the time service is rendered as they think that the chances of their getting paid will drops if people not make payment. It can be mean that your payment is their income and they prefer more debt for you, less for them. In
Prevention of credit card debt
In order to prevent people from overspendidng their budget that they previously set and prevent from debt, people have to make a clear budget and stick on it. It enable them do a realistic assessment of how much money they have take in and the money they have spend. Start by listing their income from all sources and then writing down all their expenses even those that semm insignificant (such as entertainment). It is a helpful way to track their spending pattern, identity necessary expenses and prioritize the rest.
Besides that, the best practices to prevent credit card debts is to have a better self control and discipline so that people able to pay back the full amount each month and use the credit card wisely because they have try to learn not to overspend it. People can control themselves by stop to use the credit card money if their expenses are more than their budget.
Another prevention method will be people can address the problem they face with creditors instantly to identify whether they could give revised on payment arrangement when you facing trouble on to pay off the debts. It can be mean that if the collection money from creditors is not fair, they can refer to Fair Debt Collection Practices Act to identify the debts problems. This is because creditors may approve proposal and accept modified payment plan when hiring a good credit card debt consolidation companies.
Moreover, people have to prioritize their debt repayment in order to prevent from overspendings and fall under deeper debt load. They are advisable to pay off their smaller debts in order to get rid of the highest interest payment first. They are required to list all of their credit card debts and the amount you are paying each month and then pay off the lowest amount first. This is because it will take lesser time and they will feel a sense of satisfaction when you have actually completed their goal and this will boost their confidence. Thereafter, they will use their remaining money to start paying off the second lowest debts.
Related Links:
http://www.bankrate.com/brm/news/debt/debt_manage_2004/top-10-causes.asp
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