Credit Card Debt: Causes and Preventions

Credit card 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.Credit card debt is one of the major causes of bankruptcies in almost every country in the world.

Most credit card holders did not realize is that when banks approved their credit card and established their credit limit, the banks is using the applicant's name and signature to create the money to fund the card. Thus, generates future incoming profit to the bank.

The followings are the four factors that will lead to credit card debt

1.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. While your money is going towards purchasing useless items, you might also be charging your necessary purchases on your credit card, forcing you to pay interest on these purchases every month.

2.To Many Credit Cards

Many peoples believe having too many credit cards in the wallet is an essential sign of prosperity. Some think, the larger the number of credit cards the more money is at their disposal. But, both of these facts are clearly false, and having too many credit cards is the number one factor that drives a person towards credit card debt. The hard fact to remember is that every single penny used from credit card has to be repaid and that too with interest. So, too many credit cards translates into too many credit card debts. With the repayment dates varying with the credit cards the repayment of credit card debt becomes messier and difficult to keep track of. Eventually, credit card debt consolidation comes into picture which consolidates the various debts into one. To avoid credit card debt the first thing to keep in mind is to have only those credit cards which are absolutely essential.

3.Taking Cash Advances

Next important factor that leads to credit card debt is taking cash advance from credit cards. Credit cards are there to make payment for goods and services and should not be used as debit cards. The simple reason that should stop a person from taking cash advances is that credit card companies charge heavy interest rates on cash advances and there is a penalty also to be paid. The high interest rates make the repayment scenario even tougher.

4.Repaying the minimum

People think that by repaying the monthly minimum they are doing their part towards paying the credit card debt. But, this is simply not the case. By paying only the monthly minimum the credit card debt starts accumulating at a rapid rate. And coupled with high Annual Percentage Rate (APR), this amount can throw a person into debt trap. Those who pay only the monthly minimum land up paying 3-10 times the money they borrowed. The credit card debt can be avoided if the entire amount due is paid with the next billing cycle. This will help establish a good credit history too.

Below are a few Prevention methods for credit card debt that suggested by many professional financial counselors:

1.Debt Counseling

Go through a counseling session with financial experts before you choose to go for any particular kind of credit card debt service. The experts will thoroughly examine your case and offer you expert advice on the best mode of getting credit card debt relief. You will see that the modest fee they might charge for such a service will be well worth it. There are also some companies which offer free counseling.

2.Control Your Spending

Once you get the credit card, be extremely careful with your spending. If you not able to pay the whole balance each month, then try to pay the highest amount possible. Otherwise you will get into a vicious circle and your credit card debt will grow so much that you will find yourself unable to pay the minimum in a short time. Also, if you have multiple cards, try to pay the maximum amount possible in the credit card with the highest interest rate and leave the others with the minimum required till you pay it off completely. Then carry on with the next higher rate credit card and so on.

3.Choose Your Credit

Wisely You should choose your credit card cautiously. The main item to look at is the interest rate, try to find the lowest rate available. If you can find a credit card with a better rate, do not hesitate and transfer the balance to the new card, this way you will be paying less in interests and whatever you pay will go mainly to reducing the capital.