Credit Card debts: Causes and Prevention

Holding credit card is like a sign of fashion nowadays. It is almost like a necessity rather than a luxury. This caused a lots of people have a serious problem with credit card debt due to most of them having more than one credit card with a balance. A credit card is same as what it means as, it is a card that you are able to use it by credit. Each time you use it, it will increase your debts and may causes you have credit card debt problem.
Now, let us look at the causes of credit card debt. There are Top 10 causes of credit card debt summarized at this website - http://www.bankrate.com/brm/news/debt/debt_manage_2004/top-10-causes.asp. I will focus on five causes that I feel they are the top 5 causes for this issue.

1.Income reduced but expenses remain the same.
Due to the increase of oil price, many companies have started to downsizing. One of the methods for downsizing is reduce the salaries/income of employees. Thus, the income of those employees affected will decrease but the expenses need to spend, for example, education fees for children, school fees, daily expenditure and etc will remain the same or even will increase. Most of them will delay bringing expenses in line with a reduction in their income and let the credit card debt to fill the gap.

2.Under employment.
This is quite similar to first cause. People who are experiencing under employment will continue to think positively that their current situations are temporary or they are coming off unemployment. Therefore, they would not decrease their current spending style and go on using the credit card to spend. As a result, spending does not in line with current income, the credit card debt will increase and most probably become worse.

3.Poor money management.
A monthly spending is very important because it provides us an idea that where our money are going. Most of the credit card holders did not have a proper spending plan (poor money management), they may be spending hundreds of dollars on the unnecessarily or luxury merchandises each month. Furthermore, some of them feel that a budget will construct a constricting and disallow them have any freedom on spending.

4.Saving too little or not at all.
We are advised to saving three to six months of living expenses for the event of unexpected expenditures. This is the simplest way to avoid unwanted debt. However, most of the people did not have this good habit; they may save 1-2% of their income or not at all. So, when face the event of emergency for need of money, they will just use their credit card to settle it.

5. Financial illiteracy.
Many people do not know how the money grows and work; how to invest and save for future use, or even why they have to balance their checkbook. This knowledge was not taught in school, their parents also would not have to explain the knowledge to them. So, wrong financial decision will increasing and difficult to resolve it.

The credit card debts can cause a lot of card holders went into bankruptcy. So, prevention is important to solve it. There are several preventions found in several websites:

1.Manage own finances
It is very important to have a savings plan or budget. It can help us to have a plan for money: how to allocate it for various expenses, where it spent, and how much to be saved into a savings account. It also can prevent people from getting into debt by setting a goal with a deadline by help to keep us on track the goals set and put motivators in place.

2.Know the interest rate of credit card
All credit holders are advised to know the interest rate that offered and approved by the credit card issuers and checking the rate on monthly statement. This is because the issuers can increase the rates with or without any reason or warning. It is very important for the emergencies event, such as, cars break down or jobs are lost, may cause holders to put some expenses on the card. If the card holders did not up-to-date with their interest rate, they might end up with paying more interest than they have to.

3.Use credit card like cash, not a credit card.
By using credit card, people cannot physically feel the charges charged. They will continue to purchase by using the credit card until they cannot afford to repay the debt. If treat credit card as cash, you know how much you have and how much you can spent, you will know you cannot afford any purchases when your money is decreased in amounts. This called GREEN FACTOR. By using credit card like cash, you need to be in control of your spending habits and credit card.

4.Pay off smaller balances first.
Most of the card holders will try to pay off their cards with larger balances first. It may make them feel stress and hard to repay the debts in short time. So, pay off the smaller balance first is recommended. This is because it will take less time and the payer will feel a sense of satisfaction when completed their goals and will increase their confidence and then make them easier to settle the higher balances.

5.Early education.
The best method for prevention is teaching youngest generation about money before they are qualified for a credit card. Many statistics show that the students who entering college do not know how to balance a checkbook or having a personal finance class. Besides, for those who graduated, typically enter adulthood with thousands of dollars in student loans and credit card debt. In addition, advertisers markets target more to younger and younger children nowadays. It is essential to teach them about the lure of money and how to manage finances early. It can reduce the rate for children to fall into credit card debt problems when as an adult.

Prevention is better than cure. Thus, take prevention before having a credit card.

Reference:
http://www.mozdex.com/prevent-credit-card-debt/
http://ezinearticles.com/?Understanding-Credit-Card-Debt-Problems&id=1225936
http://www.cardratings.com/howtoavoidcreditcarddebt.html