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Risks associated with using credit cards
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The use of credit cards is much more dangerous than use of checks or cash. Paying with cash is very easy; for knowing how much money is available and how much can be spent makes it very hard to get into debt. When paying with a check the process is a bit trickier; the exact balance has to be kept on the account at all time. Knowing what this balance is and continuously replenishing it can be quite hard. Nevertheless, even with a check consumers can not get into a lot of trouble. If more money is spent then the shopper has on the current account, the last written check will be rejected and account will be suspended until the balance is paid off. With credit cards however, every year more and more people get into debt. According to American Bankers Association (ABA), Americans owe more then $387 billion on their credit cards. This frightening number, averaging about $3,900 per family, is just as bad for the economy as it is for the consumers. In September of 1995, for example, The AT&T Universal card charged $15 per month for late fee to people who paid their bills just one day after the due date. Visa, on the other hand, was charging the penalty feesfor as little as a dollar over the limit, plus an interest of up to 24.9 percent per year. In the second quarter of 1995, overdue payments as a percentage of outstanding balance hit 3.267 percent. That is the highest mark since recession of 1991. "The picture is, some consumers are very, very deeply in debt," says Charles McMillion, chief economist with MBG Information Services. A swipe of the card has become so natural that many consumers do not realize how much they have charged, nor that it will take them forever to pay that debt off. Seventy percent of respondents to a recent ABA survey said that it would take them at least two months to pay off their holiday expenses. Unfortunately, there are more ways to use a credit card than ever before, making it very hard for consumers to refrain from spending a lot of money. Shopper can charge groceries, teeth cleanings, and on-line services to their credit cards. Introduction of rebate cards – which offer users credit towards new vehicles, frequent-flyer miles,
When grocery shopping at a place such as Winn Dixie the customer many times thinks to his or herself whether he or she should pay cash, charge it, or pay for the purchase with a check.
Moreover, individual borrowers are not the only ones who face the consequences of the loan default. The federal government recovers around 80% of the total defaulted amount of student loans, losing billions of dollars each year. The latest data from the U.S. Department of Education indicates that student loan default rates have been rising. Official 2011 default rate is 10%. ("Comparison of FY 2011 2-Year Official Cohort Default Rates to Prior Two Official Calculations"). The New York Federal Reserve reported that as of March 31, 2013 outstanding student debt surpassed credit card debt and was approaching the $1 trillion mark (Quarterly Report on Household Debt and Credit). If student loan default rates stay unchanged, the federal government will lose $200,000,000,000 of taxpayers’ money over the next few decades because of student loan defaults. Below is the chart representing the outstanding credit card and student loan debt over the last ten years (Quarterly Report on Household Debt and Credit).
Wilson states that for the 65 percent of students that graduate with debt, the average amount owed is a staggering $20,000.00. On the contrary, as many as a third of all college students will graduate with no debt at all. Some may think that $20k is an outrageous amount of debt. But if you consider what the average adult spends on their first new car, it puts things into perspective. A new 2016 Nissan Rogue SUV for $20k could be paid off in an average of 4-5 years. This is where one would argue about what
Then, let’s assume you put $200 on your card. Your balance would start out at $200 in credit and X amount still in debt. Then, within 30 days, your minimum payment amount would be deducted and you would have only $110 in your account. A short-term benefit is that you may spend that $110 again if you wish, whereas if you put money into your personal loan account, then you cannot touch it again because it is considered a loan repayment. The fact you are able to access the money you overpay on your credit card is a blessing. It means that if you are strapped for cash, then you may re-borrow the money you put back into your credit
This can actually be one of the most easy ways for meeting your requirements, while clearing a huge debt.
It is helpful to carry only one or two credit cards that are limited to 20% of their annual income, remembering to pay balances. in full every month. This way the consumer is not heavily distressed. by sudden huge debts. Also, sometimes, it’s not so smart to purchase.
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
Why has our generation become so immersed in debt? Student loans are a major contributing factor. 40 million Americans now hold student loan debts (The Institute). In 2014 the average student loan debt per student was $28,950 (The Institute). However these numbers are declining, student loan debt is and has been continuously rising each and every year. If a student wanted to pay off their $28,950 of debt off in 5 years they would have to pay $559.68 month. To put this in perspective, 559.68 is more than the average car payment. Even if students wanted to pay off their loan in 10 years they would still have to pay $321.40. This is 10 years of hard earned money that students will never get to see because of the cost of education.
We now live in a society where kids start their adult lives “in the red”, as their debt exceeds their income. (Draut, 2005) 60 years ago this wasn’t the case, as told by Studs Terkel in Hard Times-An Oral History of The Great Depression, “I had no idea how long $30 would last, but it sure would have to go a long way because I had nothing else. The semester fee was $22, so that left me $8 to go.” (Turkel, 1970) Imagine that! 60 years ago tuition was $22 dollars a semester! Furthermore, 45% of adults under 35 state they find themselves resorting to credit card use for basic living expenses like rent, groceries and utilities, (Draut, 2005) adding to their mounting debt. This use of credit puts them into an entirely different category of indebtedness: survival debt. (Draut, 2005) Imagine being forced to borrow to live! (Draut, 2005) If a car breaks down or someone gets sick, the only option available is using a credit card. (Draut,
“Credit Card Companies Raising Rates on Consumers.” FoxBusiness. FOX News Network, Mon. 23 Feb. 2009. http://www.foxbusiness.com/story/personal-finance/credit-card-companies-raising-rates-consumers/
I. Introduction: A. Attention Getter: How many of you have credit card debt? An average
Over the last ten years people in the United State and around the world have heavily relied more on their debit or credit cards to process transactions of their purchases. In the old days it used to be when you would get your paycheck on Friday and rush to the bank during your break or lunch in order to cash withdraw your funds or deposit them into your account. It used to be where you carry cash to buy groceries, pay bills, and go shopping. Now some people don’t even set foot inside their bank branch because they are paid using direct deposit or the funds are loaded into a debit card provided by their employer. Many employers from around the globe don’t even issue paper check anymore.
This is supported by the study of Hakim and Haddad (1999) which found that the loan repayment obligations related to income and are an important factor in the possibility of default.... ... middle of paper ... ... According to the Credit Counselling and Management Agency (CCMA) (2012), the main reasons people fail to pay a debt were poor financial planning (25%), high medical expenses (22%), business failures or slowdowns (15%), loss of control over the usage of credit cards (13%), and loss of jobs or retrenchments (10%). Therefore, Lea, Webley and Walker (1995) found that debt with economic, social and psychological factors are closely related.
The use of credit and debit cards today are taking a tour in the sense that electronic cash is becoming more admissible as the world makes a switch towar...