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. It is different from a charge card, which requires the balance to be paid in full each month.

Do you know what all of the possible causes of bad credit are? There are many different things that can negatively affect your credit score. Make sure you know all of negative credit marks and how you can avoid them:

1. Late Payment

Late payments are probably the most common bad credit marks you'll find on a credit report. Typically there are different degrees of late payment, for example your score will go down more if you're 90 days late compared to being 30 days late.

2. Bankruptcies

Bankruptcy is usually the last resort for someone who cannot possibly pay back the debt they've accumulated. While it will help you get out debt, it will completely ruin your credit score for a very long time.

3. Poor Money Management

Poor money management is one of the reasons that easy accumulated many credit card debts. The people are no planning how to use their money on spending. Thus, it has lead to a rise in debts by using credit cards.

4. Judgments

A judgment usually occurs when you do not pay a creditor and they are forced to take action through the legal system. If a creditor successfully takes out a judgment against you, you'll likely have your wages garnished until you're paid off.


Keeping control of your spending and having a sound financial plan can help you prevent debt or bankruptcy and achieve peace of mind about your financial future. Here are some ways to prevent such as:

1. Create a Budget

A clear budget that includes all of your monthly bills, food, entertainment and miscellaneous items will prevent you from spending thoughtlessly and buying on impulse.

2. Shred or Tear Up Credit Card Applications

Destroying the application will prevent you from using it and protect you from potential identity thieves.

3. Maintain insurance coverage

Health and home insurance are absolute musts in order to avoid bankruptcy. Unexpected medical bills, flood damage and fire damage can lead to ruin if you aren't properly covered.

4. Pay taxes correctly and on time

Unpaid tax debt that accumulates can cause bankruptcy.


References:
- http://news.savingadvice.com/Debt_prevention_advice_20074316125.html
- http://www.insolvencyhelpline.co.uk/debt_advice/the_causes_of_debt.php
- http://www.credit-land.com/articles/articles_page_68600_1881780_120.php
- http://www.bankrate.com/brm/news/debt/debt_manage_2004/top-10-causes.asp
- http://www.ehow.com/how_2080761_avoid-bankruptcy.html
- http://www.creditf.com/bad-credit-causes.php


Prepared By: Lee Boon Keat