Credit Card Debt in U.S.
Abstract
This essay investigates the undefined and uncontrollable debt caused by credit cards. The customers are also responsible for this, but the general market adopted this method very easily and quickly in order to have fast and easy money. People do not need to carry paper money anymore. Nowadays, they only need a plastic card, which has the power to purchase virtually anything a consumer want except luxuries. Therefore, in this context, this paper examines and researches the idea of the credit card by looking at its components. The factors of the economy in the world are changing rapidly, and these momentums are not easy to catch by the governments. In addition, the world market is changing its style, and now credit cards are becoming much common in shopping. Public opinion and government initiative constitute the main factors, which will determine the outcome of this situation.
Introduction
According to a report released by CreditCards.com, the average American household with at least one credit card has a credit debt of approximately $15,950 as of 2012 while the average interest rate remains in the mid to high teens at any given time (Smith, 2012). Credit card debt is one of the leading menaces facing Americans, and it has been around for the last four decades. Following their introduction up until around 1970s, the standards for obtaining a credit card was relatively high, which barred some people from getting a credit card. They lowered the standards with time until a point where even an eighteen-year-old college student with almost zero income and no basis for credit score could easily obtain a credit card. According to (Handley, 2012), the national credit card for households living in the United States alone is in trillions. An average American household has credit card debt of about $9,000 and pays about $1, 3000 annually on interest payments (Smith, 2012). Many Americans have expressed their concerns over these interest rates and fees skyrocketing while many do not understand the reason behind this. Majority of these has to try to avoid receiving harassment from dept collectors from different agencies, who take a psychological and emotional toll on them. This essay investigates the undefined and uncontrollable dept brought about by credit cards.
Many Americans today depend more on borrowings than they do on savings, and the most practiced form of borrowing in the U.S. is credit cards. Credit card is a form of borrowing that is relatively easy to obtain and allows for a convenient way of using borrowed money. People use credit cards as money to make purchases. The total credit card debt in the U.S. stands at 793.1 billion dollars while the average credit card debt per household is 15,799 dollars (Federal Reserve, 2012). Currently, there are about 609.8 million credit cards in use in the United States with each credit user holding 3.5 cards (Federal Reserve, 2012). Students are particularly likely to have multiple cards, as well as credit card debts. A new graduate has an average debt of 4100 dollars (Federal Reserve, 2012).
When used wisely, credit cards can provide a safer means of conducting online shopping and paying for goods and services in stores. Additionally, credit cards can provide a source of funds for use during an emergency, pay for a large purchase, or buy basic daily items. The cardholder can repay the debt immediately before interest charges are charged, or repay in installments, although this will mean paying for additional interest that usually comes with high rates. The cardholder will have to make minimum monthly payments, with extra charges in case of default in repayment. Repayment of the minimum required payments extend the repayment period resulting into large interest charges. Although very useful, the high interest rates that come with credit cards can result into social and economic problems. Many Americans currently experience serious problems related to the use of credit cards.
There is an increase in the rate of payment from historically low levels. During the 2008 economic recession, many Americans went for credit spending rather than paying off debt, especially credit card balances. Additionally, the downturn in housing prompted many homeowners to consider settling credit card debts on time a priority at the expense of other financial obligations, including payment of mortgage. Even with such move, consumers are only striving to pay down the balances and maintain their spending using credit cards. This has resulted into high card balances among most Americans.
According to (Handley, 2012), the leading cause of debt problems to most American is credit cards. Credit cards come with many advantages, but people fail to use them wisely. Failure to use credit cards responsibly may lead to serious debt problems, and it is important to understand what credit cards are and how to use them. In their advertisements, credit card companies always promote the convenience that comes with a credit card (Majid, 2010). These companies promote the notion that using credit cards for everyday expense is very convenient. However, the reality is that using a credit card in that manner significantly increases the cost of an individual’s daily expenditure (Zimmermann, 2011). This remains true even if a person make full payments on a monthly basis. Additionally, failing to make full monthly payments will significantly increase the costs of using credit cards. It is important that credit card companies do not only give the cards for convenience, they are out to make profits, which the cardholder pays.
Ideally, there are situations in which it is recommended to use a credit card. These include activities such as renting a car, making hotel reservations, or making an online purchase. In additional, credit cards can also help in an emergency (Majid, 2010). However, it is still important to ensure that an individual use your credit card responsibly. The main problem with credit cards is that it makes it easier to spend money that an individual does not have. Using a credit card to make payments brings a feeling that one is not spending money. This makes people spend cash without knowing the exact amount that they are using. When spending cash, an individual is aware f the actual amount he is spending. In addition, a consumer cannot spend more cash than you have (Majid, 2010). In contrast, when using a credit card, it becomes difficult to ascertain how much a consumer are spending. This makes people borrow more than they can afford to repay leading to credit problems.
Solutions
With the credit card companies increase their efforts to expand their market coverage and profits, consumers should take note of the cost that come with a credit card debt. According to Conrad Odysseas, founder and CEO of CardHub, consumers need to reset their minds when it comes to spending behavior. It is important to make a budget in order to gain control of your financial condition by making a realistic assessment of your expenditure and earning. This should start with a list of all sources of income. It is important to cut back on unnecessary items and start saving the money toward reducing your debt quickly. The trick to solving credit card problems is to first pay first for the balances of credit cards and loans that charge higher interest while making at least minimum due on all other debt. This will help get out of most debts. However, it is good to remember not to fall into the minimum tap where people just pay for minimum due on credit card debts.
Moreover, even though many consumers who failed to pay their credit card balances had some of their debts cleared by credit card companies, depending on the state in which you live, that credit record could compromise the ability to apply for credit.
Conclusion
Credit card debt problems are a major problem among Americans and no amount of writing of bad debts or bankruptcy can hide the truth. Credit card companies are increasing issuing credit cards to higher-risk borrowers because of increased competition between credit card companies. The only probable solution is for consumers to change their mindset concerning the use of credit cards. Making budgets and clearing pending credit card debt provide the best solution to avoid such debts. The actions by credit companies to clear-off debts owed by consumers are not a good solution as it has implication on both the consumer and credit card companies.
References:
Handley, M. (2012). Assessing the debt explosion. U.S. News Digital Weekly, 4(11), 8.
Federal Reserve, Join Economic Committee, Sallie Mae, TransUnion. Date Verified: 7.24.2012. Retrieved from http://www.statisticbrain.com/credit-card-debt-statistics/
Majid, F. (2010). The irrationality of credit card debt: examining the subconscious biases of credit card users. Law & Psychology Review, 34165-175.
Smith, L. M. (2012). Escaping the paycheck to paycheck life. Black Enterprise, 43(4), 57-58.
Zimmermann, M. (2011). Why we're hooked on credit. Men's Health (10544836), 26(5), 130.
