Common Sense - A Free Resource to Eliminate Credit Card Debt
Credit card debt is a very serious problem in some countries, notably in the USA and UK. Although banks and other lenders who promote the use of credit cards usually practice a "responsible lending" policy, at least in theory, those very same cards are heavily promoted with all manner of tempting offers, such as "First 6 Months Free Interest Rate" or "Transfer Your Balances For Reduced Interest Rate For a Year".
Why is it that consumers in the US and UK are so vulnerable to falling into arrears with their credit card payments and then into serious debt? Other wealthy nations, such as Saudi Arabia, Italy and Germany seem more sensible over the use of credit cards, and other less rich countries such as Argentina and Mexico have not yet fallen into the plastic credit trap.
One possible reason for this differential is an aversion to being in debt, in those countries where credit card ownership has not reached the vast majority of the population. There is no need to use credit cards, other than for convenience when you can pay off the the full amount before the interest rate kicks in. If there is no need, then why have a credit card? Outside of the USA, UK and France, a substantial proportion of the population seem to think there is no need to have a credit card. In those countries, common sense still prevails.
What is common sense when it comes to borrowing on a credit card? It is much the same as finance and loans in general:
1. Only borrow when the loan amount can bring a return on capital. That is a fundamental of successful business funding, but almost never applies to consumer borrowing against credit cards. Common sense says that it should apply just as much to an individual as it does to a business.
The only likely time that consumer borrowing may bring a positive return on capital is with a home mortgage, which can be a sound long term investment, especially if the home is financed at a time when house prices and interest rates are historically low, and the borrower is able to get a good fixed rate mortgage.
2. Any short term borrowing should only be taken on if there is certainty it can be paid back. Credit cards are a form of short term borrowing with a traditionally high interest rate, which makes it more imperative that you are sure of the funds to repay the full amount each month. Unfortunately, millions of people take on credit card debt without the self control to ensure that payments, in full, are made on time.
3. Just as a business will make a loss (in simplified terms) if its income is less than its expenditure, an individual consumer will be building up similar problems if their monthly spending is always greater than their income. Credit cards are often allowed by their owners to encourage overspending, progressively eating into that cardholder's current and potential wealth.
Common sense dictates that spending should always be kept well within income, and that a budget should be maintained to help ensure financial stability and progression.
4. Many businesses fail because of poor cash flow planning, and the same can apply to consumers. Particularly at risk are those consumers who use credit cards liberally as if they were not underpinned by real money. Common sense should tell you that eventually payments have to be made on those credit cards, and if you cannot meet them, then your debt problems escalate.
Any loan on which interest is payable will be a leech on your personal wealth, unless you make more from the loan than you pay. Credit cards are the most likely, most hungry, and most prolific leeches of all. However, with the application of some basic common sense, some home budgeting, and self discipline, personal debt problems caused by credit cards can be avoided, and, if already present, eventually eliminated.