Credit card debt is an example of unsecured consumer debt, accessed through 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. Being late on a payment is sometimes referred to as being in "default". 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, even creditors the consumer was not late in paying, may increase the interest rates the consumer is paying. This practice is called universal default.
Well, what are the causes of Credit Card debts? Here, we have came up with some valid causes of these debts.
Well, what are the causes of Credit Card debts? Here, we have came up with some valid causes of these debts.
- There are too many customers who cannot possibly find an equilibrium between their expenses and their income. The cases are not rare when people fall up to the ears into credit debts because of a sudden reduction of their income. They will keep spending as much as they have without considering the reduction in their income. In our opinion, they should know how to balance their expenses and their income so that there will not be any debts incurring.
- Poor money management skills - Customers fail to record their expenses it incurred. Therefore, they fail to keep in track with their monthly balances. This will lead to sudden shock to the customers because if they need money urgently they might not have it.
- Underemployment - a situation in which a person who is searching for work cannot find a job, in the case of underemployment, a person is working. All three of the definitions of "underemployment" involve underutilization of labor that critics say is missed by most official definitions and measurements of unemployment. The term can describe the employment of workers with high skill levels in low-wage jobs that do not require such abilities. When the salary is insufficient, the employees tend to use use their credit card to settle their financial difficulties.
- some of the customers do not know the interest rate of credit card and exceeds maximum credit limit. They do not read the fine print of credit card and keep on to buy things.
To avoid credit card debts, here are some ways to prevent it.
- Manage your finance - Starting with a strategy will help keep you on track before you ever even pull out the credit card. The first step is determining your monthly income and needed expenses. As part of these monthly expenses, allocate certain amount for emergencies, and long term savings. If you have some savings then you will be able to avoid having large amounts of debt on a credit card in times of a crisis.
- Be aware of the interest rate - As a credit card customer, it is a must to know the interest rate charged. This is because, the interest rate offered to the customers may differ from the
actual approved rate to the customer.
- Pay on time - This is because, the universal default clause in credit cards’ terms and conditions, credit card companies can raise your interest rate if you are late paying any creditor or even your utility company. We would recommend you to make payment earlier than the due date because this will reduce the interest payment. This will eventually reduce the total debt to be paid.
- Avoid extra expenses - Customers should avoid using credit card for their unnecessary expenses such as luxury shopping, and gambling. They should use credit card only for important expenses in order to reduce their usage.
Reference:
http://www.cardratings.com/howtoavoidcreditcarddebt.html
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