Sunday, February 15, 2009

~Credit Card debts: Causes and Prevention~


Credit card is any card that may be used repeatedly to borrow money or buy products and services on credit. It is issued by banks, savings and loans, retail stores, and other businesses. Credit card debt is an example of unsecured consumer debt. 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.



Nowadays, credit card debts are major cause of bankruptcies each year. It is because many people have never realized of its consequences from financial and non financial perspectives when get a new credit card or not enough safety net when there is an incident happen.



Causes of debts are as below:

1. POOR MONEY MANAGEMENT
Many people are unaware to conduct a monthly spending plan and do not keep track of monthly bills. People have never realized their spending on the items that are useless and do not have any value in their life. Thus, it has lead to a rise in debts by using credit cards.

2. UNEMPLOYMENT
People who experience under employment may continue to think of it as only temporary or if they are coming off unemployment feel a false sense of relief. This may lead to a rise in debt when expenses are not cut down in line with the reduction in income.

3. GAMBLING
Today, gambling has become part of entertainments in our life. It is hard to stop when it becomes addictive. Thus, it will surely lead to a financial disaster if borrowing money through credit card for gambling.

4. EXCESSIVE MEDICAL EXPENSES
If one of our family members suffers serious illness and our health insurance is not adequate to cover the medical bills then our credit cards are probably the only source of funds to pay off the medical expenses.

5. DIVORCE
More than half of us do it, some more than once. Fees that must spend for divorce such as attorney, division of assets between husband and wife, proceeds given to children are the way to rack up huge debts by using credit card if it is the gap between the expenses and income. Moreover, it will lead to reduction in income because divorce may force some people to quit their job and to have a walk in other countries.

Preventions for debts are as below:
1. MAKING AN BUDGET
People have to create clear budget and stick on it that includes monthly bills, food, clothes, entertainment and miscellaneous expenses will prevent from overspending and fall under deeper debt load. Avoiding the expensive purchases and not buying things that you don't really need on credit is an important step to getting on the right track.

2. SELF CONTROL AND DISCIPLINE
Keep our credit cards spending to amounts that we know we can pay off, don't go over-board with unnecessary purchases, and budget how we plan on paying back our charges. One of the best practices is to have a direct set up so that able to pay back the full amount each month and use in emergencies. Thus, self control and discipline to keep these cards in wallet and would not overspend.
3. PRIORITIZE YOUR DEBT REPAYMENT
Credit cards users are advisable to pay off the debts to get rid of the highest interest payment first. List out all of the credit card debts, and the amount need to pay for each month. Firstly, pay off the lowest amount and following by the second lowest amount.
4. CONTACTING AND DEALING WITH CREDITORS
Address the problem to creditors instantly to investigate whether they could give revised payment arrangement when you have trouble to pay off debts because running away is not a good solution. You may let the creditors know about your situation and help you to solve it. If not, may refer to Fair Debt Collection Practices Act if the collection of money from creditors is not fair enough. Creditors may approve proposal and accept modified payment plan when hiring a good credit card debt consolidation companies.

Finally, I hope all of the credit cards debtors are cleared to their problems with the causes are provided. Within the causes, they can get the ways to solve it as soon as possible.

http://www.mozdex.com/prevent-credit-card-debt/

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