Thursday, February 12, 2009

Credit Card debts: Causes and Preventions

Credit cards, when used properly, are convenient and a great budgeting tool. If abused, though, credit cards can be the start of a years-long nightmare and unbelievable stress. However, nowadays it seems that credit cards are almost a necessity, rather than a luxury, which has caused many people to have a huge problem with credit card debt. Generally, everyone would have more than one credit card on hand and it has been found that there are many people who have been relying on their credit cards too much and are now in debt.
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A credit card is exactly what the name implies which is a card with which you are able to use by borrowing on credit. Every time you use a credit card, you are borrowing money from the credit card issuer. Also, each time you use your credit card, you are increasing your credit card debt. The major factor is users will be charged interest on the balance owed when making only the minimum payment due. Therefore, users are just paying interest on the previous month's balance as well.
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Poor money management skills also one of the factors that causes credit card debts. A sudden reduction of income will cause people fall up to the ears into credit card debts. For example, people kept on spending as much as they got used to regardless of the reduced income.
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Furthermore, there are too many people who cannot possibly find equilibrium between their expenses and their income. With prices of goods and services are going up but not the income, hence people are forced to spend beyond their earnings. At that time, they will use credit card to purchase the goods and services and unable to payback the expenses.
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When it comes to credit card debt, prevention really is better than cure. First, avoid interest charged and stay out of debt. Every credit card offers interest-free period, thus settle the payment before the period ends. If you can afford it, pay doubles the minimum payment. The minimum payment usually pays just enough to cover the interest and a little more that pays down the balance. Paying extra will pay your balance more quickly.
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Instead of a bunch of credit cards, it's recommended to only own one or two low interest ones. The lesser card you are holding, the lesser probability for debts. Besides, you are also recommended to use debit card or paying in cash, both of which only use what you have as opposed to adding to your debt.
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Finally, credit card users should establish good credit card spending habits. A credit card should be a convenient means of spending money that you have readily available. It is not a free pass to spend money that you don’t have or will be borrowing. Thus, the users are advised to keep a budget and know what you have available to cover expenditures.
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As a conclusion, only use credit card for major purchases or emergencies. If you do not have money available in liquid assets to cover the purchase, do not use the card. If you can get into good credit card habits early on and stick with them, you will avoid having to dig yourself out of credit card debt.
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3 comments:

Anonymous said...

mayb its a gud idea if our government conduct regular courses 4 current n potential credit card users...educate them on how 2 use it wisely...when there is an urgent need to n alwiz bear in mind dat sooner or later we'll hv 2 pay 4 d purchases of goods/services dat haf been paid earlier using card..

Aus said...

sometime parent shuld play a role on educate their children too. it is better viewing de monthly bill for de credit card than just paying blindly for de card ..

it will only lead their children to think that money is easy to come to them and when they grow up de serious problem will happen which they are spending more than wat they are earning using their credit card

D-expressionist said...

Nowadays, many people rely on their credit cards too much and are in debt.
So,it is a good idea that government conduct courses to educate the credit card holder on how to use cradit card precisely