Credit Card Debts: Causes and Prevention

Credit card is a part of a system of payments named after the small plastic card issued to users of the system. It is card entitling its holder to buy goods and services based on the holder’s promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer from which the user can borrow money for payment to a merchant or as a cash advance to the consumer.

A credit card is different from a charge card, where a charge card requires the balance to be paid in full each month. On the other hand, credit card allows consumers to revolve their balance at the cost of having interest charged. Most banks and credit unions issued credit cards to consumers such as MasterCard, Visa and etc.

Nowadays, credit card debts are major causes of bankruptcies each year. The standards of living in a globalization world kept on increasing but our salaries and purchasing power remain the same. These problems cause consumers to turn to banks and credit unions to subscribe credit card. Therefore, these credit cards have planted debts in consumers’ pockets. These happened because many people never realized of its consequences from financial and non-financial perspectives when they get a new credit card. The following are some of the causes and prevention of using credit card.

Causes
One of the following causes of credit card debt might mirror our financial situation:

Excessive Medical expenses

Credit card will probably be the main source of funds to pay off medical expenses if health insurance is not adequate to cover the medical bills. In United States, almost everyone pays their medical expenses by credit card.

Gambling

As we all know, gambling has become part of our life as entertainment and fun. But when one is addicted to it, it’s hard to stop. Its fine if we spend our own pocket money but if we borrow money through credit card for gambling will lead to financial disaster. It’s like saying ‘digging your own grave’.

Poor Money Management
Poor money management also led to credit card debts by consumers who did not control their spending properly. Most people spend their money purchasing items that are valueless to them in near future. Debtors are unaware to conduct a proper monthly spending plan and did not bother to keep track of their monthly bills. These led us to the mountain of credit card debts.

Unemployment
When economic downturn, many people are unemployed and jobless. Households were forced to used credit card for their groceries, utilities and other expenses in order to maintain their current lifestyle when the main breadwinner of the household had lost his job and unable to find new job during short periods. This may lead to a rise in debt when expenses are not cut down in line with the reduction in income.

Prevention:

1. Avoid adding up more credit card debts
When you have a big sum of debts to pay, try not to apply any new credit card as it will increase your debts not reducing it. So, whenever there is a credit card showroom or salesperson approaches you, avoid it and try to say to no.

2. Making a budget
Try to have a habit of keeping every single receipt and bills to form a budget for all your expenses. Spend wisely according to your budget plan; hence, it will prevent you from overspending.

3. Self-control and discipline

One of the best practices is to have a strong self-control and discipline to avoid overspending. Consumers (users) can prevent these from happening by setting a list on what to buy and not to buy. Consumers should also follow their planned budget and limit the usage of credit cards.

Below is a video clip on how to overcome your debts:

In the nutshell, credit cards do come in handy when in need but when it comes down to settling the payments it’s a headache to users. Credit cards are meant for emergency only. So used it wisely or unavoidable causes will fall upon you and never try to run away from paying your debts.