Credit Card debts: Causes and Prevention

The more people charge to their credit cards, the greater the profits made by the credit card companies. The credit card company receives a percentage of each transaction as a merchant fee. But the big money comes from the credit card users: the more you spend using your credit cards the higher the probability you will borrow money from the credit card company at steep interest rates, get hit with fees for exceeding your credit limit, and incur larger penalties for late payments.

The psychology of credit cards themselves makes it easy for you to spend more money than you should. If you're going to use credit cards wisely and profitably, this is crucial to understand.

When you charge something to a plastic credit card, it doesn't feel as though you're really spending money. Why not? Because when you spend cash, you tend to withdaw an amount from your checking account to cover multiple purchases over a certain time period - say a few days or a week. When you spend that cash, you're aware that you are using up that informal budget. If you use the cash faster than you had planned, you're immediately aware that you might be overspending.

Reasons why consumer overspend

Poor financial management-(spends first, manage later)

Consumer is facing lack of knowledge and understanding about the nature and forms of money, how it is used and the consequences of consumer decisions in manage their major portion of income will spend on important stuff such as basic needs e.g. food, shelter and clothes rather than unimportant stuff such as desire wants e.g. luxury car, cigarettes and alcoholic beverages.

Lack of patience-(want own it now)

Some people want instant gratification. They see something and they want it immediately, regardless of whether they have the money to afford it. They lack the patience to wait even a short amount of time, and therefore they spend even when they don't have the money available to cover the purchase.

Sense of power-(buy anything)

Spending money actually makes many people feel more powerful. Whether it is handing over a wad of cash or pulling out a gold card to charge money, the simple act of spending a large amount of money gives them a rush of false power.

How to control Credit Card debt

Understand how to keep personal financial records.

For example, know that records of income, expenses are necessary for income tax purposes; understand the consequences of poor financial management.

Evaluate the relationship between spending and using credit responsibly.

For example, recognize impulse buying behavior might limit future choices; factors such as debt levels and essential expenses should be considered when deciding a reasonable credit limit.

Make sophisticated choices when comparative shopping.

For example, develop personal spending criteria based on income and needs, access information from a variety of sources (including the internet), about goods and services and apply criteria.

Teens Must Be Taught How Money and Credit Cards Works