Credit card allows its users to purchase goods and services on credit. The amount owed is then charged with interest by the card issuer which would normally be banks and financial institutions. Credit card actually brings great convenience to users as there is not a need to carry a huge amount of money everywhere. However, a lot of users tend to misuse the credit card by overspending, and thus engaging themselves in credit card debts, getting themselves into serious troubles.
Causes of Getting into Credit Card Debts
Spending Money You Do Not Have
In reality, all of us are using ‘future’ money everyday. For example, electricity and phone calls. We use the services first, and then only do we pay the bills at the end of the month. Things are worse when we are surrounded with attracting advertisements that tempts us easily, especially when it is as easy as just swiping our cards to get what we want! When the credit card amount stated in the statements cost more than what we can afford, we delay the payment and that is when the debt starts to increase.
Maintaining Expenses on a Reduced Income
Seeing that the country is facing economic crisis currently, this is especially common. Many are experiencing pay-cut or even worse, retrenchment. However, we are too used to our previous purchasing behaviour that we tend to forget about the lesser purchasing power we now have. Credit card debts occur when users do not reduce their expenses to match their new income level, and thus causing the figures on their credit card statements to double up as time goes by.
Saving Too Little or Not Saving At All
Having little or no funds in savings is a common mistake that leads to credit card debts. Savings up to three to six months is important to get prepared for emergencies like illness, job layoff, and divorce. When something urgent happens, you have your savings to back up and therefore needless to swipe your credit card, preventing yourselves from getting into credit card debt.
For further information, please refer to Bankrate’s Guide to Managing Your Debt: Top 10 Causes of Debt.
Setting up a Budget
The first and most important step is to set up a budget. It is essential to manage your income and expenses well in order to be aware of your financial status. With a reasonable budget in hand, you make sure your money is appropriately allocated in expenses and savings. Besides that, discipline yourself to keep track with the budget every month to make your budget successful. It is hard to set up a budget, but it is harder to stick to the budget.
Limit the Credit Card in Your Wallet
Firstly, think of ‘do you really need a card?’. Yes, credit card is necessary for emergencies and traveling. However, you only need one or two at the most for these situations. Cut off unnecessary cards so that you are not tempted to use them. It is much easier and safer to keep track of only one or two cards. Besides, spend some time to understand every credit card available in the market and then opt for the card which has the lowest interest rate. In this case, you reduce the possibility of getting yourself into credit card debts.
Pay on Time
Do not delay your payments. Making late payments allows the interests to accumulate which in turns get you involved in larger debts. Some people today apply an electronic funds transfer as a solution. It automatically pays your credit card purchases to card issuer at the end of the month by crediting your bank account. In such a way, you can avoid paying late and also avoid acquiring credit card debts.
For further information, please refer to How to Avoid Credit Card Debt.
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