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Thursday, February 19, 2009 11:54 PM
Credit card debts : Causes & Prevention

So, what do we know about credit cards? For me, i view it as an evil plastic card that accumulates..(our worst nightmare)..DEBTS!!! Basically a credit card allows consumers to purchase products or services without cash and to pay for them at a later date. Credit card debt has become a major social problem in some countries, including Asian countries. Debt can undoubtedly cause both worry and stress, not just to the debtor, but their immediate families too. What is actually the causes of this credit card debts?

#1 Too many expenses
to cover but not enough cash or income to do so. For example, the main breadwinner of the household loses his job but monthly expenses are not cut down in line with the reduction in income. This obviously leads to a rise in debt because his family is forced to use their credit cards for groceries, utilities, education of their children and so on. It is worst if the family did not save up any money for rainy days ahead.

#2 Bad money management. Which is the most common reasons why so many families accumulate lots of debt. Not having a monthly spending plan and not keeping track of their monthly bills makes them unaware of where the money is going. They might be spending hundreds of dollars every month towards items that are useless but they do not realize it. While the money is going towards purchasing useless items, they might be charging their necessary purchases on credit card,which force them to pay interest on these purchases every month.

#3 Ignoring money or financial problems. Saving and investing our personal finances are the most important thing to do. We must always learn how to save for a rainy day, as well as manage your money so we can have extra cash on our hand. Therefore, cutting the need to use credit card during emergency.

With so many factors causing credit card debts, how do we solve this problems? How do we prevent this from happening to us in the future?

#1 When you see other people buying new furniture, go on exotic vacations, or go out to expensive restaurants all the time do not feel tempted to do the same if you do not have extra cash to do so. Never, ever feel you have to buy something just because a neighbor or friend has been boasting about theirs. Do not be tempted and jump on the credit card train because of the society pressure you are facing. Envy and jealousy will damage your finances.Think rationally before you make a decision.

#2 Credit card should only be used as a convenience to pay if you have no cash on you, knowing that you can pay off the balance before interest is charge. Many cards have an interest free period. Never use credit cards as a loan beyond that free period. Even if others do, you have no need to do the same if you can pay off the balance as soon as possible.

#3 Plan all your borrowing. Sit down and write down what you absolutely must buy over the next year, and add what you would like to buy. Total the cost. Write down a budget for each month, making sure you have listed all your regular expenses that are fixed and unavoidable, and those over which there is some flexibility. Compare that total with your income. If you have a surplus, then you can think about those extra purchases you had in mind. If not, don’t think any more about them.

Resisting the pressures of the credit card society will be a lot easier once you have set your mind to it, and started to feel the benefits. Enjoy the process and you will be a cash convert for the rest of your affluent life.

Check this video out: