Sunday, June 28, 2009

Credit Card Debts: Causes and Prevention



Credit Card Debts

Payment card covers a range of different cards that can be presented by cardholder to make payment. The payment card can be classified into types depend on how the account is managed. Different types of payment card include debit card, credit card and charge card. Among all the types, credit card is most popular. It is because cardholders can make purchases at merchants that accepting credit card without any cash payment. Credit card debts accessed through credit cards. Debts result when a cardholder make purchases either items or services through credit card system. Credit card debts will accumulates via interest and penalties when cardholder does not pay back the money of payment.

Causes

Nowadays, credit card debts have become flourish problem especially in campuses. One of the most common causes is excessive spending. Cardholder did use the credit card a lot and will soon apply another credit card. Normally, cardholder will just kept more offers and move the credit around from card to card.

Cardholder always has little or no saving. This is one of the major mistakes that easily cause the credit card debts. Cardholder will uses credit card to cover any unpredictable or emergency expanses.

Most of the credit cardholder falls into debts is only partially understood or lack of financial knowledge about credit card system. He/she has no idea about the debts and charges he/she is going to pay.

Poor money management includes monthly budgeting of credit card’s bill payment. This is one of the most general mistakes that easiest to make. For instance, cardholder will be charged high interest due to late payment of debts.

With the ease use of credit card, relying on it to meet monthly purchases and expenses become very common. Credit card looked as extra income. It absolutely will lead the cardholder down slippery road into debts.

Some of the cardholders may be more comfortable with debts. This cause is related to one’s debt attitude. Cardholder believes that their future earnings able to paid off the accumulated debts. He/she willing to tolerate debts, so that he/she can keep maintains their comfortable lifestyle.

In this time of financial crisis, many people become unemployed each day. He/she will reach for credit card to cover the daily expenses if he/she is having difficulties securing a new job.

Prevention

Prudent spending and being a responsible credit cardholder is the best against credit card debts. Cardholder should spend within the means, and if do make purchases by credit card, he/she should settle the payment as soon as possible. Never make a late payment to anyone.

Credit card debts are a problem for a significant number of students. Many of them lack the knowledge of how to handle the debts. Education is the key. Education must go beyond providing information. The earlier they learn how to manage finances, the less likely they will fall into debts problem.

Creating a new budget is an effective and efficient way to under control the spending. With the budget statement, he/she will be able to clearly know the exactly spending. He/she will able to cut out unnecessary expenses. Setting up budget is not easy. So, he/she can obtain free consultation services in some organizations. The key is always avoided extra expenses and purchases.

Credit card, when used properly, is convenient and an excellent budgeting tool. If abused, it will become the starting point of nightmare and stress. Remember that always ask yourself what you want the credit card for.

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