Credit Card debts: Causes and Prevention

Credit card is a card that can used repeatedly to purchase product and services on credit which issued by banks and financial institutions, credit cards provide us with the added security and ease when shopping and traveling .However, cost of living has increased today, It is often the case that your mailbox is filled with a number of credit card debt settlement notices, or you may be plagued by collection calls, and if such is the case with you then you must be having debts that you are finding difficult to pay off, and the problem has been going on for some time. Many people tend to misuse them and made the numbers of credit card debts until create the major problems of bankruptcies each year increase. Here, we have share some of the causes and prevention of the debt.


Causes:

• Less Income, More ExpensesAccording

Malaysia’s consumer price index, Malaysia inflation rate increase to 3% in April 2009, an increase in petrol and diesel prices leads to rise to higher transportation cost, this continuously make the prices of goods and services increase speedy. The going up expenses and not the income, contribute people forced to spend beyond their earnings. Customers who cannot possibly find an equilibrium between their expenses and their income, they will use credit card to purchase goods and services and unable to pay back the money, fall up to credit debts.

• Poor Money Management

One of the main reasons for debt in this country is lack of or poor money management skills, unaware to conduct a monthly spending plan some of these are balancing a checkbook, maintaining a good credit score, or managing credit. Without keeping this spending plan and bills, people will never realized how much their spending and how many income they can spend. Besides, people will keep on spending with using the future money to purchase some product that are useless and do not have value in their life, especially in the mega sales regardless of the reduced income. Thus, it has lead to a rise of credit card debts.

• Only pay the interest

The third factor that causes credit card debt is many credit card users only pay the interest and the minimum amount of principal when the debt is due, thus never fully repaying the entire sum. Debt accumulates and increases via interest and a penalty when the consumer does not pay the company for the money he or she has spent. Carrying a balance is very costly. Interest rates can be as high as 21% and by paying the minimum payment per month (usually about 2% of the balance) credit card companies are quite pleasure to loan you money for your purchases. Buying something such as a refrigerator on a standard credit card and paying the minimum payment can make that appliance very costly.

• Unemployment

Households are compel to use credit card for foodstuff, utilities and some expenses purposes to maintain current lifestyle when the main breadwinner of the household has lost his employment and could not find a new employment during short periods. This may lead to a mount up in debt when expenses are not minifying in line with the reduction in income.

• No money communication skills

It is important to communicate with your spouse or significant other and your children about your current financial health. Know what credit accounts you each have and promise each other to be honest about what each other spends. Keep the lines of communication open and discuss financial goals and spending styles, make them aware that if you cannot afford a certain item. Without the communication, many people find out that their spouses have racked up thousands of dollars in credit card debt and they had no idea that the accounts even existed.


Prevention Is Better Than Cure

• Control Spending and Save Up

People who using credit cards should learn how to have a better self control and discipline in order to learn not to overspend it. People can control themselves by limit their credits cards amount by stop them to use the money if they was expenses more than their budget. Besides, just purchase that item which is necessary only.

• Work out a budget

Have a good financial planning. Add up all your fixed and variable expenses for the month, and subtract that from your total monthly income. This will tell you how much money you have left over after paying your monthly bills. Figure out if you can afford to make more than minimum payments on your credit card debt, and if you can, do it. This will lower the amount of interest you pay over time.

• Choose the Right Card for You

This is one of the most important initial steps regarding your credit card use. Choosing the exact card serves you the entire well. Cards that have low or no fees at all and have interests that are low also, are the ones that are preferably appropriate especially to those who are only beginning to use credit cards.

• Always Pay on Time

Michael Killian, credit and debt management guide for About.com says never make a late payment to anyone including car and house payments. Because of the universal default clause in credit cards’ terms and conditions, credit card companies can raise your interest rate if you are late paying any creditor or even your utility company. People who can control their finances and manage their card payment schedules are the ones who rarely acquire credit card debt. In the conclusion, credit cards are not an evil, it still bring a lot of convenient to us and is a great budgeting tool if u used it wisely.

References:
http://www.3debtconsolidation.com/top10-causes.html

http://ezinearticles.com/?Credit-Card-Debt---Prevention-Is-Better-Than-Cure&id=226244