Credit Card Debts : Causes and Prevention (Week 5)

A credit card is a system of payment named after the small plastic card issued to users of the system. For the case of credit cards, the issuer lends money to the consumer (or the user) to be paid later to the merchant. It is different from a charge card, which requires the balance to be paid in full each month. In contrast, a credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. Most credit cards are issued by local banks or credit unions, and are the same shape and size, as specified by the ISO 7810 standard.

Credit card debt is an example of unsecured consumer debts, 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 or late payment the company for the money he or she has spent. When a consumer has been late on a payment, it is possible that other creditors, even creditors the consumer was not late in paying, may increase the interest rates the consumer is paying. This practice is called universal default.

Causes
Sometimes the late fees, high annual percentage rates (APRs), and universal default overcome consumers who frequently not pay off their debt and the customer declare bankruptcy. If a customer files for bankruptcy, the credit card companies are required to forgive all or much of the debt, unless such discharge of debt is successfully challenged by one or more creditors, or blocked by a bankruptcy judge on legal grounds irrespective of creditors' challenges. Another negative consequence of using credit card is that you will never feel like you are spending the real money.

Prevention
There are 3 steps to prevention the bankrupt for the customers. Firstly, pay more than the minimum payment each month. The customers must also pay on time or a finance charge will be added onto the total and creating a larger minimum payment for the next month. Secondly, get a system for credit card debt reduction. The customers must have their deadline each month for paying bills. There are great software programs for keeping track of the financial records. Lastly, if you have a limited budget for debt repayment, write down what you can pay each creditor each month to avoid financial difficulty. Beside, the customers can negotiate with the credit cards companies to set the limit for their monthly credits.