Credit Card debts: Causes and Prevention

Credit card can be considered as plastic money which replaces the hazards of cash in making payments and purchasing transactions. Having this advantage, credit cards are now being misused by the consumers, and even causing bankruptcies.
According to a survey conducted by New Straits Times, 1,397 of credit card holders in 2004 and 1,497 credit card holders in 2005 were declared bankrupt, representing an increase of 34 per cent over the 1,117 credit card defaulters in 2002. The numbers of declared bankrupt keep on growing year by year and this unhealthy trend is becoming “worrying”.

The causes of debt may be due to:
1. Free application. Nowadays, credit card no longer holds by the rich or higher income status. The most attractive are free for application and excluded any annual fees and even free for life. It causes more people now are able to hold a credit card, such as students, operators or fresh graduates.

2. Poor financial management. Based on the survey conducted, a credit card holder who loss of financial control in using credit card may spend over 5 times of his/her monthly salary. The over spending cased the financial burden.

3. Credit card interest rates. Banking institution may charge higher interest on the debts. If a credit card holder is unable to pay the debts within a stipulated period, he/she will face a large number of debts when interest is included.

4. Misusing credit card. Among the credit card holders, most of them are using not only one credit card, with each credit card for a small amount. This is because they perceived that the small amount will not cause any consequences. In fact the sum of these small amounts is usually the financial killer.

Suggested preventions:
1. As a smart consumer, we should consider twice before applying for a credit card. Is that a need to apply or just blindly follow the trend? Especially those fresh graduates, they should weight their ability for repaying debts on a credit card.

2. For the card holders who always loss of financial control after using credit card, they should get a related education or concept regarding financial control and wisely plan their monthly budgets for expenses. Alternatively, they can also seek for financial consultation to solve their credit card debts problem.

3. Card holders should make sure they are able to pay the credit card statement on time and avoid any over spending which may lead to huge debts.

4. For card holders who hold more than a credit card, they should not bring along the cards when go for shopping, but only keep them as for emergency use. Bear in mind, only let a single credit card in active use; otherwise it may cause misusing of credit cards.