Credit Card Debts: Causes & Prevention

Credit card debt is an example of unsecured consumer debt, accessed through ISO 7810 plastic credit cards.

Debt results when a client of a credit card company purchases an item or service through the card system. Debt accumulates and increases via interest and penalties when the consumer does not pay the company for the money he or she has spent.

Causes

1) Less Income, More Expenses
It happens that the main wage earner of the household loses his job but monthly expenses are not cut down in line with the reduction in income. This obviously leads to a rise in debt. The family is forced to use their credit cards for groceries, utilities, etc.

2) Saving little or not at all
You should save for at least 4-6 months of living expenses in case an unfortunate tragedy happens. For example, if you lose your job on January 1st, you shall have enough money to maintain your current lifestyle till July 1st of that year. Until July 1st, you can find yourself new employment or open your own business.

3) Poor Money Management
Poor money management is one of the best reasons why so many families accumulate lots of debt. Not having a monthly spending plan and not keeping track of your monthly bills makes you unaware of where your money is going. You might be spending hundreds of dollars every month towards items that are useless and have no value in your life, yet you do not realize it.

Prevention

1) Stop accruing more debt
The more you continue to spend, the longer it will take for you to pay it off. Reduce your spending. If you have high interest credit cards, transfer the balance to ones with a lower Annual Percentage Rate (APR). By the way your debt won’t increase while as you’re paying it off.

2) Make a budget and stick to it
It’s easy to overspend when you don’t have a budget. Calculate how much you have to spend and stick to that limit. Write down all of your expenses so you know where your money is going.

3) Change your spending philosophy
Are you only buying the things you really need? Those impulse purchases may feel good at the moment, but in the long run, they will only get you further into debt. If you’re going to get out of debt, you will need to change your whole attitude to spending.