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6 Common Causes of Credit Card Debt

Multiple credit cards in one handCharging purchases on a credit card has steadily been the most preferred payment  method of consumers lately. About 1.5 billion credit cards in the country are helping fuel this way of life. According to Statisticbrain.com, there are about 176.8 million consumers who has a credit card in their wallet where the average card ownership per person is 3.5. This goes to show the dependency of the US market in credit card purchases.

The expense item is still in the top four debt item in the country. It is in the league of mortgage loans, student loans, and auto loans. In a consumer driven economy, credit cards play a vital role not only in the private lives of its users but the whole economy as well. It increases the purchasing power of the consumer and extends credit for an otherwise impossible purchase.

But there are a few people that despise credit cards because of all the financial trouble they are in at the moment. Some of them were not aware of the impact of credit cards in the credit score, how late charges worked and other details that dragged them down in debt and interest payments. Though there are those that are able to live off a credit card but still manage to maintain their finances in check .

Common Credit Card Problems

It is important to note that any unfavorable details in your credit score might take approximately seven years to repair. This is in stark contrast with how a consumer can do damage on the credit score in a matter of days or weeks. What is easily put on the report will be a very hard and long battle to recover from.

In most cases, the problem lies with the user and not the card. The consumer gets in all sorts of predicament because the usage of the card was not properly observed. Here are some of the top reasons why a person could walk right into a debt trap using a credit card.

Credit card ready

Most consumers are not ready. This is one basic flaw in the system where as young as high school students get access to a credit card. When they get to college, they see credit cards as an endless source of cash. They then come home to mom and dad pleading poverty with a tidy amount of credit card bill.

It is not only students because there are also professionals who are not ready for the added financial responsibility but still get their hands on a shiny new plastic. One basic requirement of owning a credit card is a steady income to pay off the purchases. It is impossible to pay for the charged items without a good and steady source of funds. It could be coming  from an allowance, salary from employment or even returns from investment ventures. You would need to understand budgeting as well for this.

More than you can handle

Most of the consumers started with one credit card. But not all of them stop at just one. A lot of people are taking in a lot more and sometimes go way in over their head. Assigning a specific function to each credit card is a great idea but only if you can be financially mature to handle multiple cards. If not, it is better to stick to one card.

Some consumers assign a specific card for groceries, gas and other items. This is a budgeting tool that allows them to see how much each cost item is being used through the credit card bill. This is useful but requires a lot of restraint and discipline. Restraint from using the credit card just because you feel like it and discipline in using the card for specific purposes only.

Debt overcomes income

As you make purchase using a credit card, you do not see actual money exchange hands. This could be one of the reasons why overspending with the card is a common occurrence. Plus the fact that the money being used to pay for the purchase is borrowed and not actual money of the holder makes it all too easy to spend.

Consumers need to keep tabs on their expenses to know if their salary or any other sources of income is enough to meet the payments once the bill arrives. For some, it is the longest few weeks of their livers from the time the purchase was made up to the time the statement arrives. It is important to know how much you can spend in your card and keep a close eye on your credit limit as well.

Payment dispute

A late payment and non-payment are reported to the credit bureaus by the lender. But if there are any dispute on purchases on the card, it is best to talk to your lender at the soonest possible time. This is to get to the bottom of the issue and be able to investigate the incident. At this point, it is best to keep an open line of communication with your creditor and to not hold any payments due as a sign of retaliation for the error.

Major life change

Credit.com points out that major life changes affects the finances as well. Getting married, expecting a baby, moving houses and other big ticket item purchases can have an effect on the personal finance of the consumer even up to their credit cards. It is best to be able to anticipate and plan your budget around the new chapter in your life and make the credit card to your advantage rather than a liability.

Understanding the fine print

It is ideal that a consumer knows the basic details of his or her credit card. The credit limit, payment due date and interest rate are just some of the items that is needed to be remembered by the person. But there are more details about the credit card that a consumer must understand in order to enjoy the benefits to the fullest.

With a card, it is best to understand how the late fees and other finance charges work on your loan. Knowing this can alert you even before buying an off-budget item. It is a great idea to understand how the point system works and if there are any fees related to transfers of balances into or out of the current one.

Credit card use

Consumers are not asked to splurge on clothes shopping everyday or to totally stop purchases with a credit card. There should be a fine line between the two and the consumer must be able to strike the balance between too much and too little. Though there are fast credit score fixes, a consumer must not rely in this possibility to lose track of credit card spending.

Proper money management, keeping a steady income source and managing credit card expenses are some of the prerequisites for properly handling the plastic. It is a tough job but the rewards are great. Staying away from debt is one of the top reasons why people are trying to be more aware of credit card usage. Debt is already an all too common circumstance for most people but the better handling of various credit tools such as a credit card, then debt will be kept at bay.

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