Credit card is defined as any card that may be used repeatedly to purchase product and services on credit which issued by banks and financial institutions. Credit cards actually provide us with the added security when shopping but most of people tend to misuse them and may lead to credit card debt.
Credit card debt is an example of unsecured consumer debt, accessed through ISO 7810 plastic credit cards. 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. The results of not paying this debt on time are that the company will charge a late payment penalty and report the late payment to credit rating agencies. The late payment penalty itself increases the amount of debt the consumer has. When a consumer has been late on a payment, it is possible that other creditors may increase the interest rates the consumer is paying.
There are some causes of credit card debt:
1) UNEMPLOYMENT
Households are forced to use credit card for groceries, utilities and some expenses purposes to maintain current lifestyle when the main breadwinner of the household has loss his job and could not find a new job during short periods. This may lead to a rise in debt when expenses increase in line with the reduction in income.
2) POOR MONEY MANAGEMENT
Poor money management is one of the best answers that explain why so many families have accumulated many credit card debts. It is because most of them are unaware to conduct a monthly spending plan and do not keep track of monthly bills. They have never realized that they spend too much on the product which is valueless and don’t have any use in their life. Therefore, the loss control of using credit card leads to raise the expenses and also credit card debt.
3) DIVORCE
Divorce fees such as attorney, division of assets between husband and wife, and proceeds for kids are the way to rack up huge debts by using credit card especially during financial crisis. Furthermore, it will lead to reduction in income because divorce may indirectly cause some of them to quit their job and plan to have a break in other country.
4) HIGH MEDICAL EXPENSES
Nowadays, credit card has become one of the sources of funds to pay off the medical expenses whether health insurance is not adequate to cover the medical bills or one of your family members suffers serious illness. In United States, almost everyone pays their medical expenses by credit cards to get treatment despite financial crisis.
5) GAMBLING
Gambling has become part of entertainments in our life. It is hard to stop when it becomes addictive. Some people go for gambling not because have a fun there but purposely try to gain much more money even they may lose everything. Thus, it will surely lead to a financial disaster if borrowing money through credit card for gambling.
In order to solve the credit card debt, we need to take some effective actions to prevent.
Tips to prevention credit card debt:
1) If you find yourself making interest payments every month on your credit cards, you need to assess your income and expenses. Total up your monthly expenses and subtract them from your income. This is your disposable income after expenses, and also the amount you have each month to use as you determine.
2) Stop charging items on your credit cards and pay cash for items you must buy. Then, analyze your credit card debt, pay credit card debt with highest rate of interest in priority. Use your disposable income to completely pay off the card with the highest rate. Once that card is paid off, close the account and destroy the card. Then focus your attention on the next card, and do the same until all of the debt on your cards has been completely paid off.
3) Just use one or two cards and use them as a financial tool. Remember that a credit card is not the same as free money. If you still have problem, leave you credit card at home while you are shopping.
Credit card debt is an example of unsecured consumer debt, accessed through ISO 7810 plastic credit cards. 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. The results of not paying this debt on time are that the company will charge a late payment penalty and report the late payment to credit rating agencies. The late payment penalty itself increases the amount of debt the consumer has. When a consumer has been late on a payment, it is possible that other creditors may increase the interest rates the consumer is paying.
There are some causes of credit card debt:
1) UNEMPLOYMENT
Households are forced to use credit card for groceries, utilities and some expenses purposes to maintain current lifestyle when the main breadwinner of the household has loss his job and could not find a new job during short periods. This may lead to a rise in debt when expenses increase in line with the reduction in income.
2) POOR MONEY MANAGEMENT
Poor money management is one of the best answers that explain why so many families have accumulated many credit card debts. It is because most of them are unaware to conduct a monthly spending plan and do not keep track of monthly bills. They have never realized that they spend too much on the product which is valueless and don’t have any use in their life. Therefore, the loss control of using credit card leads to raise the expenses and also credit card debt.
3) DIVORCE
Divorce fees such as attorney, division of assets between husband and wife, and proceeds for kids are the way to rack up huge debts by using credit card especially during financial crisis. Furthermore, it will lead to reduction in income because divorce may indirectly cause some of them to quit their job and plan to have a break in other country.
4) HIGH MEDICAL EXPENSES
Nowadays, credit card has become one of the sources of funds to pay off the medical expenses whether health insurance is not adequate to cover the medical bills or one of your family members suffers serious illness. In United States, almost everyone pays their medical expenses by credit cards to get treatment despite financial crisis.
5) GAMBLING
Gambling has become part of entertainments in our life. It is hard to stop when it becomes addictive. Some people go for gambling not because have a fun there but purposely try to gain much more money even they may lose everything. Thus, it will surely lead to a financial disaster if borrowing money through credit card for gambling.
In order to solve the credit card debt, we need to take some effective actions to prevent.
Tips to prevention credit card debt:
1) If you find yourself making interest payments every month on your credit cards, you need to assess your income and expenses. Total up your monthly expenses and subtract them from your income. This is your disposable income after expenses, and also the amount you have each month to use as you determine.
2) Stop charging items on your credit cards and pay cash for items you must buy. Then, analyze your credit card debt, pay credit card debt with highest rate of interest in priority. Use your disposable income to completely pay off the card with the highest rate. Once that card is paid off, close the account and destroy the card. Then focus your attention on the next card, and do the same until all of the debt on your cards has been completely paid off.
3) Just use one or two cards and use them as a financial tool. Remember that a credit card is not the same as free money. If you still have problem, leave you credit card at home while you are shopping.
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