Thursday, January 17, 2008

5 bad habits for getting into debts

With the increase in credit card debts throughout the world, it would be wise to look into the causes of these phenomena.

One of the main reason is the spending habits of the cardholders.

1. Expenses is higher than the income.
Spending more than the earned income is not a good idea. Credit card is one of the mean to ease this worry with the formula of spending now and pay later. Card holders have the option to make the full payment or minimum payment each month. Of course, the latter will be the obvious choice in this situation. With no saving, borrowing will be the only option and this will contribute to a bigger deficits in long run until the credit card limit was maxed out.

2. Spending money that you don't have.
Credit card provides future money that not owned by the cardholders. It is the best instrument to make purchases for being convenient. However at the same time, each transaction conducted is equal to a new debt being created. Balances remained at the end of each month will be charged with high interest. In this way, the debt will continue to grow.

3. Using credit for ordinary purchases.
Some users use credit card for daily purchases such as food, petrol, clothes and entertainment which will indirect creating new debt on the daily basis.

4. Using credit when you have cash.
Whenever the users use the card rather than cash, they relied on the principle of buy now and pay later attitude and this will lead to uncontrollable expenses. Using cash in fact helps the cardholders control their expenses.

5. Using debt to pay debt.
Using credit cards to pay off other cards are not helping as well as it will shuffling the debts around. This in fact will increase the debt with the additional interest rate plus the existing incurred debts.

No comments: