Credit Card debts : Causes and Prevention

Credit card is a plastic card with a magnetic strip or embedded microchip that is connected to a credit accout and can be used to buy goods or services. It provides extra financial freedom. If it is used properly, it is a convenient and great budgeting tool. If credit card is being used inappropriately, it can be a start of your nightmare and cause stress in your daily life.


Causes of Credit Card debts

1. Unemployment
High credit card debts can happen when main breadwinner of household losses his job but monthly expenses are not being cut down. The family will be forced to use credit card to pay utilities, groceries, and etc.It then leads to a rise in debt.

2. No saving cushion
We often hear the phrase of “having enough savings for a rainy day is always a worthwhile investment”. People should save at least 4-6 months of living expenses to use it when unfortunate tragedy happens. For example, if you lose your job on 1st June, you shall have enough money to maintain your current lifestyle until 1st December of that year. Therefore, during these unfortunate events, people without any saving need to use credit card to pay for their daily expenses.

3. Poor money management
A poor money management plan causes many people to accumulate lots of debt. They may not have monthly spending plan or do not keep track of their monthly expenses. Thus, they are unaware of where their money has been spent. They may spend hundreds of dollar to buy unnecessary items but they do not realise it, thus leading to high credit card debts.

4. High medical expenses
When family members suffer serious illness, credit card may be the only source of fund to pay off the unpaid balance of medical expenses when health insurance cannot cover the whole medical bill.

Prevention of Credit Cards debts

1. Manage your finance
Credit card users should determine their monthly income and needed expenses. As part of these monthly expenses, they should figure in 5%-10% of their income for emergencies. They can save this money in short term saving. Having some saving can avoid using credit card for emergency payments.

2. Always pay on time
Paying on time is one of the best solutions to avoid debt. People who can control their finance, their money and manage their card payment schedules are rarely to incur high credit card debt.

3. Cut your cards
Credit card users should cut their extra cards so that they are not tempted to use them. They should only keep the one with lowest interest rate for emergency usage.

4. Shop for the right card
This is an important initial step regarding credit card use. We should choose the credit card with no or very low fees and low interest charge.

5. Self control and discipline
People who use credit card should have good self control and self-discipline in spending. They should control themselves by limiting their credit card amount to avoid overspending.