Credit card debts: Cause and Prevention

Nowadays, credit card have become part of our life. In the point of view of most people, these cards are symbols of wealth. However, many of them do not actually know how to use their cards wisely. According to the Credit Counselling and Debt Management Agency (AKPK), credit card debt in Malaysia has not yet reached a critical level. Based on Bank Negara Malaysia's statistics, the debt stood at RM24.4 billion as at end of March 2009. However, RM24.4 billion is not a small money. So the knowledge of the cause and prevention of credit card debts are important for us to eliminate the debts.

Causes of Credit Card debts

The main cause is that people buy with one credit card till the limit is over after that they switch to another credit card and so on. While doing so, they never think of their income or bank resources and even forget that they have to pay this back. Finally, when they see the card statement, they find themselves in a huge financial mess.

Besides that, the interest and penalties payment are the others causes. 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. The late payment penalty itself increases the amount of debt the consumer has. When 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.

Here are others causes of credit card debts:

• You can easily get a credit card from any company. The company themselve try hard to issue a credit card to you with multiple options and schemes.
• If you have a card you need not to carry cash so that there is no chance of loosing money.
• You can do unlimited shopping with multiple cards even if you do not have a money.

Prevetion of Credit Card Debts

• keep your credit cards to a limited number. Most of the people who have mounting credit card debts are having this problem because they have too many cards in the first place. If you want to have a card that you can use everywhere, try just having a Visa, MasterCard which are all used everywhere.
• Establish a budget and then follow that budget exactly. In other words, don't be tempted to charge that plasma TV to your credit card on a whim when you haven't budgeted for it this month.
• Avoid making any purchases with your credit during peak buying seasons such as Christmas. Credit card companies charge you more interest during these peak seasons because they know that everyone is buying more items with their credit cards. Most of these companies will not make a point to tell you this, but they make a mint off of us at these times.
• Be aware that balance transfer credit cards' teaser rates won't last forever. Six months is common now. The "normal" rate will return sooner than you think, so use that interest-free period to aggressively pay down balances.
• Finally if we find that we simply cannot control our credit card spending then we may have to opt for the most difficult step of all, putting our credit cards on ice for a while. That will mean a change in lifestyle and spending habits but if the hole from credit card debts is getting too deep then we just might have to stop digging.

References:

http://www.bernama.com.my/bernama/v5/newsbusiness.php?id=416849

http://en.wikipedia.org/wiki/Credit_card_debt

http://www.creditcards.com/credit-card-news/5-simple-credit-card-debt-rules-1267.php