Credit Card Debt: Causes and Prevention

Credit card has become a necessity in one’s life nowadays. Undoubtedly, it has given a lot of conveniences to its users. However, in certain circumstances, it creates irritations. Put aside credit card fraud which is a serious crime, the credit card debt has become a severe issue and it is the major cause of bankruptcies each year.

The causes of credit card debts:

Unemployment
It so happens that 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. The family is forced to use their credit cards for groceries, utilities, etc.

Poor Money Management
Poor money management is one of the best reasons why so many families accumulate lots of debt. Not having a monthly spending plan and not keeping track of the monthly bills makes one unaware of where the money is going. While the money is going towards purchasing useless items, he might need charging the necessary purchases on credit card.

Gambling
Most people hope to win the lottery but the chances of that happening are almost 0%. Do not spend tomorrow's saved money today just because one expects a promotion in his job or is expecting an inheritance from a deceased grandfather. We all know life is unfair and things can go wrong more easily than going right.

Big medical expenses
The cost of obtaining cures and medicine is increasing every year. Nowadays, almost every hospital and doctor accept credit cards. While one needs treatment but do not have sufficient cash or savings in the bank, credit card will be used. Here, a huge debt may be created.

Financial Ignorance
Important topics such as saving and investing one’s personal finances are not taught in school. People who are lack of such knowledge may easily become the next victim of credit card debt.

Followings are some of the method to prevent credit card debts:

Manage your finances
The first step in managing the finance is 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.

Shop for the Right Card
It’s important to really shop around and get a credit card personalized for your particular situation. It is ideally suggested that getting one with no or very low fees and low interest. It will take a little time to compare various offers, but with the high saturation of the market you’ll find the perfect fit for your wallet.

Pay on Time
Never make a late payment to anyone including car and house payments. Because of 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.

Pay the Balance in Full
This is important in keeping control of your credit cards. Before using a credit card for a purchase, ask yourself, “Do I have the funds to pay for this?” In cases of emergencies where your emergency fund won’t cover the whole amount you need to charge, experts say at least pay more than the required minimum payment.

Early Education
The best method for prevention is teaching your younger generation all about money before they even qualify for a credit card. Statistics show that students are entering college without ever having a personal finance class or knowing how to balance a checkbook. Yet once students arrive on campus credit card issuers are eager to sign them up. College students are racking up the bills.

The main prevention is aware of the causes of credit card debts and starts to spend less in order to stay in well financial situation.

Related links:
http://www.credit-land.com/articles/articles_page_68600_1881780_120.php
http://ezinearticles.com/?Credit-Card-Debt---Prevention-Is-Better-Than-Cure&id=226244