Reasons Behind Credit Card Debt

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Today´s guest post comes to us from Alban. Alban is a personal finance writer at Home Loan Finder, a home loan comparison website.

Reasons Behind Credit Card Debt

The only way to change your bad behaviors is to take responsibility for them, and while no one forces you to spend on your credit card or to buy things you don’t need and can’t afford, the reasons behind your credit card debt can actually be made up of a myriad of catalysts.
The reasons behind credit card debt – which can lead to mounting stress, not to mention bills – can include:
1 – Your Attitude

This is where you need to take responsibility for your role in your credit card debts because it is easy to succumb to the consumerist, must-have-it-now attitude, and spend more than you earn. Saving is seen as old fashioned and who hasn’t rolled their eyes when their parents started talking about how in their day you waited to make big purchases and saved a little each week.
However, when you are spending on credit you are living beyond your means, especially if you don’t repay your purchases right away before interest is applied. A credit card should be viewed as a short term cash flow solution, not as part of a long term financial plan.
You can adjust your attitude towards credit cards by thinking about the consequences of each purchase in the interest you will be charged. By using some forward planning and restraint you can resolve this reason.
2 – Your behaviors

Your attitude towards money and credit may be the catalyst to make the purchase, but what you do afterwards is important to your debt levels too. One or more of these behaviours could be the reason behind your credit card debt:
  • You don’t repay your balance in full each month. If you can benefit from interest free days all the better, but even if you don’t it is important to repay your balance as soon as possible, and in full each month. When you have a revolving credit card balance you are charged interest again and again each month on the same balance and those purchases you made months ago have now doubled or tripled in cost and that item may have even outlived its usefulness before it even repaid. 
  • You’re unaware of your balance. Ignoring your credit card balance won’t make it go away, in fact the opposite is true. When you are aware of your balance you will know that you can’t afford to keep spending on your card, or making frivolous purchases, and should instead channel those extra funds to your repayments. 
  • Making large purchases. If you are in the market for a new fridge or television for example the store you are buying from may offer you a store card or credit terms. However, your own credit card interest rate will often be much lower than the store is offering you however, putting such a large purchase on your card means you need to pay it off quickly to see the savings in interest. 
  • Making cash advances. If you have interest free days on your credit card, cash advances often don’t qualify and will instead attract interest right away. Cash advances also often attract a higher interest rate than regular purchases so those withdrawals cost you even more.
3 – The Cards

Of course, credit card providers make it very easy for you to get into credit card debt because that is where they make their money – in fees and interest charges. As a result, your credit card balances are charged compounding interest if they are not repaid in full each month. This means that as the interest is added to your balance in one month, the following month interest is charged on the total of your balance and your interest charges, compounding your balance.
Credit card annual fees can also be an unexpected expense of several hundred dollars each year. Fees are added to your balance as a purchase would be, and must be repaid before attracting interest.
Your credit card may also be tempting you to spend with the promise of rewards for every dollar spent. While this sounds like a good deal, it is only worthwhile if you are making purchases you would make anyway – and not spending for the sake of rewards points – and you repay your balance in full within the interest free period because interest charges can eat into the true value of your rewards redemptions.
4 – The Providers

If a credit card company already has your business, they want more of it, and if they don’t have you, they’re willing to try and tempt you to them. As a result you will often find preapprovals and offers of an increased credit limit in your letter box and these are very easy ways to get into credit card debt you can’t afford.
Plus, credit card approval processes are relatively easy to navigate and a bad credit history or lack of savings is often no barrier to obtaining a credit card.
5 – The Unexpected

Credit cards are a popular go-to in an emergency and as a result, the unexpected is a prominent factor behind many people’s credit card debts. If you face an emergency expense, if you lose your job or if you become separated or divorced, all of these things put pressure on your finances. However, your credit card company doesn’t care, and the debt must be paid. Unexpected expenses can also run in the vein of car repairs and unannounced school excursions which need to be paid, but as your credit card debt mounts, and its use becomes more prevalent, unexpected expenses can become the desperate need to a new outfit for a last minute party, or the need to stock the fridge with imported beers because friends are dropping in.
Instead, if you face an unexpected event or an emergency situation, you can avoid succumbing to credit card debt and making the situation worse. You simply need to adjust your behaviours, because you can’t keep living the same lifestyle if you lose your job for example, because waiting for things to return to ‘normal’ can mean months of living on credit, and the creation of a whole new emergency expense when the credit card statements arrive.
Therefore, if you are dealing with an unexpected life event, stop using your credit cards and start changing your spending habits. Have a budget and make sure your essential bills are paid, cutting back on luxuries until things become settled again.

How about you all? What in your life has caused you to accrue some credit card debt?

Share your experiences by commenting below!

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