Credit Card Debt: Causes and Prevention

What is Credit Card?
A credit card is a system of payment named after the small plastic card issued to users of the system. In the case of credit cards, the issuer lends money to the consumer (or the user) to be paid later to the merchant.


What is Credit Card Debt?
Credit card debt is an example of unsecured consumer debt, accessed through ISO 7810 plastic credit cards. Nowadays, credit card debt is a burgeoning problem for many people. A lot of people use credit cards as a "crutch."


Causes

Financial Over limit

The downside to credit card debt is that the interest rates alone can force the average person or family to eventually have to rely on bankruptcy. If they can't afford something they really want, they charge it. Then when it comes time to paying the bill they pay the minimum amount due (very bad thing) only. This then accumulates an awful amount of interest and the next month when you get your bill, the balance is about the same.

Poor money management

Another factor related to student credit card debt is one's attitude toward money. Teenagers experience "premature affluence" because of their high levels of discretionary income and almost no bills. Some teens may become used to a certain lifestyle and not know how to adjust when bills increase in college. Further, some students may be accumulate debt because they believe that their current financial situation is temporary and that short-term debt will be easily repaid and is not a problem. Students may be willing to tolerate debt so that they can maintain the comfortable lifestyle to which they are accustomed.

Prevention
Excessive credit card debt can cause a poor credit rating, bankruptcy and subjection to high annual interest rates. However, if you manage your credit card well, you can avoid these problems. Simple preventions will keep the savvy card holder from such dangers.


Stop debt growing
If debt is growing, there are four things card holders can do immediately:

1. Move debts to the lowest interest rate available. Remember, a card holder with a good credit rating can always ring and ask the credit card company for a lower rate at any time.
2. Prioritize paying off the most expensive debt first, so interest is kept to the minimum.
3. Assess their situation fully, work out their income and expenditure, and total their debts and assets.
4. Take this information to a professional body offering free debt advice.


Payment protection
In fact, spending on a credit card is borrowing money. Some cards offer payment protection insurance, but premiums are often high and the conditions of payout complicated. The best insurance against inability to pay is to pay as much as possible, as regularly as possible, and limit unnecessary spending. If a card is too tempting, only take cash when shopping. Try to double up on the payment and when you get extra cash, rather than spend it, apply that towards the principal.



Get professional help
There are plenty of debt consolidation firms offering to help, but do bear in mind these companies ultimately make money from a card holder’s debt. There are four main agencies that offer free, impartial advice for those in debt: the Citizens Advice Bureau, the Consumer Credit Counseling Service, National Debt line, and Pay plan. These are non-profit making organizations that guide those in debt through the options available to them.

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