Credit Card debts: Causes and Prevention

Credit card is a type of payment card which provides holder with credit to make purchases up to a limit fixed by card issuer (e.g. Visa, master card). It permitting the card holder to purchase items or services while deferring payment, and allow them to make payments to multiple vendors at one time. That is the reason why the credit card debt problem exists. A debt occurred would accumulate and increases via interest and penalties when the consumer does not pay for the money he/she has spent.

There are several causes of credit card debts:

Medical Expenses
- Currently, there are almost all hospitals accept credit cards in Malaysia. This enable people to go for medical treatment even they have no cash on their hand. As an assumption, you have a serious disease now and you need treatment immediately. Unfortunately, you do not have the cash or any savings, but you do have credit cards, what will you do? For sure you will use credit card right?

Sales/ Offer
- When there are mega sales or offer in shopping centre, people tend to use credit card to make payment or purchase items. This is because they want to make a huge purchase but they didn’t have enough money with them. At the end, they might realize that they are unable to repay for the money used.

Credit Card “Point-to-Gift” Redemption
- Credit cards provide return to the card holder by allow them to exchange the points accumulated with gifts, voucher, etc. For example, Jusco encourage its member to use “Jusco card” to make payment. Members can accumulate points every time they use the credit card and they can exchange those points with gifts/voucher. Human are easily to get attracted when there is benefits. With the benefits given, they preferred to use credit card instead of using cash. By this way, the accumulating of points also caused the credit card debt accumulated.

Sub-credit Card

- Parents nowadays are more likely to sub their credit card to their children. If their children are good in management of money, then should be no problem. But, most of them do not know how to control their expenses. With credit card, they buy whatever they want and don’t even look at the price of the items. Some parents did check for their children’s expenses, but some do not. In such a way, after a long period, they might aware that their credit card debt has reached the limit while it is too late.

Thus, prevention is needed to avoid the credit card debt. Here is some of the prevention:

Savings
- It is better we do savings usually, so that we would not run out of cash when there is emergency. With savings, people can make payment by using cash and they will know the amount of money that they have in hand.

Self-control
- Card holder needs self-discipline to keep these cards in their wallet and not over spend on them. One of the best practices or habits that can get into is to have a direct debit set up so that card holder have to pay back the full amount each month. This means that while they have the convenience of using the card in emergencies or while abroad, they have a strong incentive not to let their lending get out of hand.

Therefore, before you apply for credit card, ask yourself why you want those credit cards for. Do you just want them so that you have a source of payment in emergencies, to shop occasionally online, or when you travel abroad? Or do you plan on going on a shopping spree and spending the rest of the year struggling to clear the balance? Most people do not intend to ever use up their credit limits and max out their credit cards, but it is surprisingly easy to do, and can be very difficult to undo.

Posted by : Shu Hui