Credit card debts: Causes and Prevention

Credit card can be either very useful or harmful. It is all depend on how you utilize it. Recently, more than 6000 credit cardholders were declared insolvent and incurred RM2.5 billion of bad debt to the credit institution.

There are several causes that will lead to credit card debt. However the main contributor is laid on the habits of the credit cardholders. Some people like to buy on impulse and even spend more than what has they earned.

First, it is because their expense is greater than income. They misused the application of the credit card that is spending now, pay later. They might spend their future money which will make the purchase to be convenient and seem as if their purchasing power has increased. However, by doing so, the transaction made is transformed into a new debt. Of course the cardholder will opt for minimum payment per month instead of the full payment. Thus, the monthly balance will be charged higher interest and lead to greater debt.

Secondly, by having too many credit cards the users will get addicted using their cards as they perceive that they should “fully utilize” their offer from credit card institution. They will end up too many debts

The worse scenario that can ha[[en is when the cardholders use one credit card to pay off other cards. Eventually, the credit card debt will roll bigger with additional interest.

We should limit ourselves from using credit card if there is sufficient cash in hand. Moreover, we should plan our budget before we spend on something and control ourselves from adding more debt. If this behavior can be maintained in the long run, our debts will decrease gradually.

Reference:

http://www.ecommercetimes.com/story/51756.html

http://ecommerze.blogspot.com/2008/05/more-than-6000-card-holders-in-malaysia.html

http://ecommerze.blogspot.com/2008/01/5-bad-habits-for-getting-into-debts.html

http://ecommerze.blogspot.com/2008/01/10-warning-signs-of-credit-card-debts.html

by Ngan Sin Yin