Credit Card debts: Causes and Prevention

A credit card is a system of payment named after the small plastic card issued to users of the system. In the case of credit cards, the issuer lends money to the consumer or the user to be paid later to the merchant. Credit cards, if used unwisely, can lead to a mountain of debt. If you charge more than you can afford, make low monthly payments, or pay late, you may be headed for trouble.

Listed below are the top five causes of debt:

Spending Above Your Means: Many debt-burdened consumers hold more credit card debt than their annual income. Spending more than you make is the No. 1 cause of debt.

Job Loss: After losing your job, it is important to modify your spending habits and adjust to the depletion of incoming funds.

Medical Expenses: Most people who face debt problems from medical bills failed to save money for an emergency.

Gambling: Gambling is an addictive habit that leads to financial ruin for many Americans.
Poor Budgeting: Whether it is not saving or spending too much, bad budgeting techniques create debt for oblivious spenders.

Credit card prevention:

1) Manage your finances
Starting with a strategy will help keep you on track before you ever even pull out the credit card. You need to determine your monthly income and needed expenses. As part of these monthly expenses, figure in 5-10% of your income to set aside for emergencies, long range savings such as a retirement account, and short term savings. If you have some savings then you avoid having to put large amounts of debt on a credit card in times of a crisis.

2) Create a Budget
If you cannot keep your credit card spending in check, create a budget. Make each credit card purchase only within the framework of your budget. If you cannot stick to your budget, then don't carry your credit card with you (you may want to keep one in the house for emergency use only).

3) Charge Only What You Can Afford
If you do not have enough cash to purchase the item or service, don't charge it. Instead, save your money (preferably in an interest-earning savings account) until you can afford the purchase.

4) Pay the Balance in Full
This is important in keeping control of your credit cards. Before using a credit card for a purchase, ask yourself, “Do I have the funds to pay for this?” In cases of emergencies where your emergency fund won’t cover the whole amount you need to charge, experts say at least pay more than the required minimum payment.