Credit Card debts: Cause and Prevention

Are you a credit card holder?
First of all, before we talk in depth about credit card debts we should know what credit card is. Credit card is a system of payment named after the small plastic card issued to users of the system in which the issuer lends money to the consumer or the user to be paid later to the merchant. A credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. Most credit cards are issued by local banks or credit unions, and are the same shape and size, as specified by the ISO 7810 standard.


Credit card holder is the holder of the card used to make a purchase or payment or the consumer of the card. It cannot be ignored that credit really bring convenient to the consumer but at the same time it also comes along with the hidden problems that might be easily overlook by the card holder especially debts. Credit card debt is an example of unsecured consumer debt accessed through credit cards. So, to be a smart consumer of credit card, you should always keep track to the transactions that you made by using credit card in order not to be in debts.


Why credit card debts??
It was reported that there is increasingly growth of bankruptcies which majority caused by unmanageable credit card debts. Debt results when a client of a credit card company purchases an item or service through the card system. Debt accumulates and increases via interest and penalties when the consumer does not pay the company for the money he or she has spent.


Cause: Missing Payments or Late Payments. The fastest way to get into credit difficulties is by not repaying the minimum payment required or only makes the minimum payment of the charges of your credit card. Even worse, cardholder will be forced to go bankrupt. The results of not paying the debt on time are that the banks, credit card companies, or other financial institutions is a late payment penalty will be charged and reporting of the late payment to credit rating agencies which will affect the user’s credit rating. Additionally, the late payment penalty itself will increase the amount of debt the consumer has.
Prevention: Set up a Direct Debit for the minimum amount and pay off the debts as much as possible of the remaining balance to keep it low.

Cause: Spend, Spend, and Spend. In fact, please do not, do not and do not do this! Making payment or spending money on credit card is borrowing money from the banks or the credit card companies. It is a debt and consumers must repay it at some point of time. In other words, you are spending your own future money! Sometimes consumers might be not realize about that and obtain a purchase which actually cannot afford by them. Thus, it is easily make themselves in debts when they are not noticed that they are spending out of their financial ability.
Prevention: Use the card to obtain a purchase that you can afford provided you can pay off the cost over time or spend by using a debit card. Only spend what you can afford!

Cause: The End of the Honeymoon. It is commonly for nowadays credit card companies offer credit cardholder with 0% interest rate in order to attract more consumers to apply for a card. But, every special offer must come to an end. The credit card companies will transfer from 0% balance to low introductory interest rates. When the special rate ends, the interest rates will shoot up, and a small debt can grow rapidly, particularly if only the minimum repayments are being made.
Prevention: There is no point in being loyal to a card that has outlived its special rate, you can just pay off the outstanding balance and get a new card with a lower rate for your purchases. Try to make a note of the expiry date of all special deals to make sure that all transactions go through before interest becomes due.

Cause: Holding Bunches of Card. It is advised that not to hold more than 8 cards at any one time as this will adversely affect credit ratings. Besides, when you have more than 1 credit card on hand, you will be easily overspend your money and get yourself in trouble with huge debts. By carrying too many credit cards with you at a time, the cards might in danger of being stolen or lost and being used by somebody unknown. Thus when these happened, you might found that you are horribly in debt with the credit card companies.
Prevention: Clear any outstanding balances and cancel your credit cards formally which are no longer used. It is also advised that shoppers to only carry one card at a time to reduce the risk of your card be stolen or lost.

A Little Tips…
You can often detect warning signs of being in too much debt long before your receive the collection notices. If more than 2 or 3 danger signs apply to you should consider getting some help with your finances.

• You have begun charging essentials like food and daily expenses to your credit cards.


• You make only minimum payments on your charge card accounts each month.


• You are at the limit of your credit cards, or have too many credit cards.


• You are unsure how much you owe creditors.
  

Just let me stop here for this topic, and hope that everyone of you can make use of it. Ciao!

~SiuLing~


Further more

• Credit Card Debt


• Head into the new millenniumwithout that credit card debt


• The Truth About Credit Card Debt