The Negative Impact of Credit Card Debt
Credit cards are used as a foundation for setting up your financial future. Although this may be true it can also bring you down every time you swipe. The purpose of this paper is to illustrate that credit cards can be dangerous because it can lead to debt and will determine what your future will look like. College graduates in their late 20s can face three major issues such as over spending, high interest rates, and possibly low credit scores when dealing with credit card debt. Strategic recommendations include not only being careful when using credit cards, but also limiting yourself to what you can and will be able to handle in the future.
“Perhaps the greatest disadvantage of using credit is the
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When applying for credit cards and loans, lenders determine what you are able to afford by looking at your past credit history. Depending on how good your history may be lenders will assign you an interest rate that will determine how much you have to pay to the bank for the services. “Interest rates serve as compensation for the risk taken on by the lender based on the borrower’s credit history and other financial details, and provide a way to cover costs associated with lending.” (Prime Rate) As college students start applying for credit cards, they basically start out with no history causing them to encounter high interest rates. Lenders rely heavily on your history because they want to be able to make sure they are lending money to people who are willing to pay them back. This is a great risk to a lender because if the consumer doesn’t pay what they owe, the lender will have to take a loss. For a company taking a loss is very important because they are not able to bring in a profit if the consumer will not pay off their debts. This then creates a problem for new applicants because people with the same revolving history as the consumer that did not pay will be set back. College students may have one of the hardest times applying for credit cards because not a whole bunch of them work and they are likely to spend more than they need. This …show more content…
Making sure that you do not overspend will decrease your chances at high interest rates and increase your credit score. These are important to college students and graduates because it sets up your future. You wouldn’t want to be working just to pay off your loans and you want to be able to make big purchases on your own. You can’t rely on your parents to help you all of your life and you have to take that responsibility. Credit cards are the start of your adult life so make sure you don’t mess that up.
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Over-Utilisation of Your Credit Card Limit: People often over utilise their credit card limits and this result in a high credit balance in their account. High balances on credit cards are also a cause of low credit scores. It is always better to pay your credit card bills every month. If you are not able to control your spending habits, then it may make sense to go for a card with a lower limit. This way, you will not build up a large debt and easily be able to pay all your dues. Another thing to note, credit card bills have a minimum sum to pay along with the overall outstanding. If you are unable to pay off the total amount you owe, it makes sense keep paying the minimum amount due until then.
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Credit card debt is one of this nation’s leading internal problems. When credit was first introduced, and up until around the late 1970’s, the standards for getting a credit card were very high. The bar got lowered and lowered to where, eventually, an 18 year-old college student with almost no income and nothing to base a credit score on previously could obtain a credit card (much like myself). The national credit card debt for families residing in the United States alone is in the trillions (Maxed Out). The average American family has around $9,000 in debt, and pays around $1,3000 a year on interest payments (Maxed Out). Many people have the concern today that these interest rates and fees are skyrocketing; and many do not understand why. Most of these people have to try to avoid harassing collecting agents from different agencies, which takes an emotional and psychological toll on them. While a lot of the newly recognized “risky” people (those with a doubted ability to make sufficient payments) are actually older people who have been customers of certain companies for decades, the credit card companies are actually consciously targeting a different, much more vulnerable group of people: college students. James Scurlock produced a documentary called Maxed Out on this growing problem, in which Senator Jack Reed of (Democrat) of Rhode Island emphasizes the targeting of college students in the Consumer Credit Hearings of 2005
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Instant gratification or easy access to almost everything is necessary, to have the right clothes and the right shoes, but usually they have no money to buy it with. This is where credit cards come into play, and where many individuals see credit cards as free money. They assume that they can buy it now, and of course, pay it later assuring themselves and their family that they will have the money. This comes down to responsibility; can college students handle budgeting their money? According to a study conducted by a Midwestern University shows approximately 66% of college students did in fact own at least one credit card. Some students can handle it and some can’t, it all depends on what priorities that person has. If buying a hamburger or new video game and not thinking about it is more important than paying that purchase off and establishing credit than those priorities are not good. Credit cards are just another factor in growing up. It 's learning what boundaries you have and what responsibilities are
Today’s college students are bombarded with ads, commercials and mailings telling us that we need to spend money to be happy. At the same time, many of us come to college very ill-equipped to handle our finances. Financial literacy, defined as "the ability to use knowledge and skills to manage one's financial resources effectively for lifetime financial security," is important in our money matters as well as academic performance. Based on your understanding of financial literacy and experience (or lack thereof) of personal finance, 1) pick two personal finance topics (including but not limited to: credit cards, student loans, budgeting, saving, banking, and investment, etc.)
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The lack of knowledge plays a big part in the debt young people are getting themselves into. Credit cards are often offered to young adults as soon as they get out of high school. Many take advantage of having a credit card without even thinking about the responsibilities that come with it, instead they think about the things they will be able to buy. In “Generation Debt” the author Tamara Draut says that young people are getting into debt younger than ever before. Two of the reasons that are more costly on young students that hit hard on the budget are car repairs, and travel for students who have families and friends in other states (231). From my experience I know first-hand what it was like to be offered credit cards right out of high school, and I didn’t hesitate to get any of them. I st...
Currency Fluctuation, What is Currency Fluctuation, 2014. Available at: http://www.wisegeek.org/what-are-currency-fluctuations.htm Retrieved at 6th April 2014
...Mercedes-Benz Prices with MSRP & Invoice. (n.d.). In True Car. Retrieved December 3, 2013, from http://www.truecar.com/prices-new/mercedes-benz/