Friday, July 3, 2009

Credit Card Debts: Causes and Prevention

In this new millennium, it is becoming less for consumers to pay for their expenses by cash. People now are mostly use credit cards to purchase clothes in their closets and to insert petrol for their cars. The unfortunate consequence of this shift in behavior is that credit card debt is become higher. Eliminating this type of debt can be difficult as many people are only able to pay a minimum monthly payment each month and the interest rates are extremely high. Under these conditions, it can take years to pay off even the smallest credit card balance. This is the general consensus of consumer groups on the alarming number of credit card users below the age of 30 who were blacklisted and later declared bankrupt due to credit card debts. So, it is better for us to take some prevention method on the credit card debts.

Causes of Credit Card Debts

1. Financial Illiteracy
May be you are not been taught in schools or your parents may not explained to you. It doesn't matter. You are responsible for your life and your money anyway. Financial mistakes are increasingly expensive and complicated to resolve. It is because many people don't understand how to save money and invest for a rainy day, or even why they should balance their checkbook.

2. Underemployment
You might deserve a break but actually it is not a good time. People who experienced under employment may continue to think of it as only temporary or if they are coming off unemployment feel a false sense of relief.
Get those expenses in line with your current income. Down the road if you increase your income due to more hours, a better job, or a second job, then it is the time to start adding in some of the previous spending before you become underemployed.

3. Banking and Windfall
Spending tomorrow's money today is very attractive. Especially if you believe that tomorrow the money will come no matter what. A planned job bonus may not be a confirm thing. The inheritance that you believe will come your way may not. The lesson is don’t spend the money until the check clears.

4. Poor Money Management
You may spending hundred of dollars for unnecessary thing for each month.A monthly spending plan is essential. Without one you have no idea where your money is going. Planning is no more difficult, it is just writing down your expenses and income and reconciling the two. You will be surprised at how powerful you'll feel when you are making thoughtful decisions about when and where to spend your money.

5. Medical Expenses
Gaps in coverage, lapsed policies and increasingly costly alternatives make this a popular category. If you think a credit card is very convenient, think again. The medical industry wants to get paid at the time service is rendered. They know that if they don’t, the chances of their getting paid drops. This means more debt for you, less for them.

Prevention of Credit Card Debts

1. Credit Counseling and Debt Settlement
This helps clients by educating them in ways to get out of debt and stay that way, but approaches are significantly different. The objective of credit counseling is to pay off debts in full by negotiating lower interest rates, while debt settlement companies pay off debts faster by negotiating reductions in amounts owed.

2. Choose a Credit Card which Offer the Lowest Interest Rate
Photocopy the credit card offer, including the interest rate and terms. Create a letter to your credit card companies stating that you are thinking of switching to their competitor because they are offering a far more reasonable interest rate. Credit card companies do not want to lose your business. Therefore, they will try to offer you a more desirable interest rate.

3. Manage Your Finances
Starting with a strategy will help keep you on track before you ever even pull out the credit card. Determining your monthly income and needed expenses. As part of these monthly expenses, figure in 5-10% of your income to set aside for emergencies, long range savings such as a retirement account, and short term savings. If you have some savings then you can avoid from putting large amounts of debt on a credit card in times of a crisis.

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