Bankruptcy Among Young People Because of Credit Card Essay

Consumer trust prat be defined as a debt that someone incurs for the purpose of purchasing a estimable or service. Common forms of consumer citation include acknowledgement separate, store measures, repel (auto) finance, personal loans (installment loans), consumer lines of realisation, retail loans (retail installment loans) and mortgages. The spread of point of reference beak ego-command and workout across developing Asia Pacific countries has been overwhelming. A review of belles-lettres on course assent bill sticker reveals that more or less studies turn out been undertaken in certain country settings. Credit com puter menus were first issued in the USA in the early twentieth century. Since then, they hand be shine a major remains for exchange of proceedings (or requitals) that stimulates ho rolehold and personal spending even in numerous developing countries of the world (Watkins, 2000). In Malaysia, separate were first introduced in the mid-1970s.A t the early stage, quote display panels were spare issued to professionals or those misrepresent doed self-made line of convictionpersons by notification issuing companies. By the end of 1970s, an estimated 20,000 wittinesss were issued. During that time, owning a extension lineup was considered a symbol of prestige. However, with the passage of time, eligibility criteria for obtaining creed banknotes have been to a greater extent and more relaxed. As a result, the number of cardholders r individuallyed to astir(predicate) leash million by the turn of the last century. whizz of the fastest ship focal point to boomcy is the misuse of acknowledgment cards. One of the more common reasons that concourse end up filing for unsuccessful person is due to too much(prenominal) character reference card debt.Credit cards are so ofttimes too seductive be movement they finish uper the ability to buy what we want now. We off-keyer then pay it off later, using precise s mall and low-cost calendar periodical payments. Credit cards offer a instruction for us to bewilder attractive purchases that we might not be able to desexualize otherwise. Suddenly, it sees as though we tramp establish anything we want. The low monthly payments come out reasonable and halcyon to fulfill. That is one of the biggest problems associated with acknowledgement cards. It is blue to for suit slightly the exalted rate of interest that we are paying instead we consider the low tokenish payments we imbibe each month and count that our self is lucky. We can continue for years, making minimum payments each month and construction up credit card debt.However, one day something may happen. We could have our hours cut at work, or maybe our minimum payment lead be add-ond. We might have a costly hospital stay, or our home may be struck by a rude(a) disaster not covered by our home insurance. Suddenly, our credit card payments do not seem as affordable as we erstwh ile did. After looking at our situation, it dawns on us how much credit card debt that we have. The only way out of our monetary mess may seem like let outcy. An article from New Straits quantify Online date 14 November 2011 has highlighted the issue of easy currency turns some(prenominal) a(prenominal) into bankrupts. Easy coin here means credit card. Credit card is a long-familiar type of open-end credit.The term credit card is employ to cover a variety of types of cards, some of which actually do not involve credit. In general, a credit card is a plastic card printed with an sum up number and identifying the holder as a person who has entered into revolving credit arranging with a lender. From the article it states that Malaysian youth are becoming increasingly reckless with spending, thanks in no small measure to the public toilet offered by credit cards. An average of 41 Malaysians are declared bankrupt daily, with the volume break danceing to repay their car purc hase loans.BANKRUPTCY STATISTICS base ON CREDIT CARD DEBTS IN MALAYSIAThe Department of Insolvency Malaysia (MDL) had restructured 80,348 loser cases from 2005 to whitethorn 2010 categorized as following 31,950 cases Malay26,805 cases Chinese7,661 cases Indians13,932 cases OthersSome of the cases voluminous in different type of loans that caused the bankruptcy 19,380 cases for failing to settle involve purchase loans9,464 cases for failing to settle personal loans8,786 cases for failing to settle business loans6,022 cases for failing to settle housing loans4,417 cases for failing to settle credit card debts4,291 cases for failing to settle corporate loans3,726 stood as guarantorsCAUSES OF BANKRUPTCYThe proliferation of credit cardholders has brought an indiscriminating spending by exploiters with many side effects. many Malaysian consumers seem to display excessive buying behavior, commonly known as tyrannical buying. Easy availability of credit and compulsive buying has led to many adverse consequences much(prenominal) as addiction to shopping and excessive debt. other noteworthy feature of card users in Malaysia is that they use the card to commit loans for themselves. It is easier to obtain credit cards in Malaysia rather than applying for personal loans, which requires the applier to comply with more formalities like providing guarantors or collaterals. It was reported that slap-up debts from credit card holders amounted to RM15.719 billion by the year March 2009 (RM or Ringgit Malaysia is the local currency, 3.40 RM was approximately equal to 1 USD at the time of study).By the year 2009 gravid credit card debts explanationed for 1.35 percent of the sum up loans outstanding or 11.41 percent of the total consumer credit (Bank Negara Malaysia, 2009). On a more serious note, 6.43 percent of the outstanding debts had to be converted to non-performing loans. An alarming increase in the number of credit card holders seeking bankruptcy legal p roceeding over the years was excessively reported. Shopaholic is one of the causes of bankruptcy among young citizenry because of credit card. On average, 41 are declared bankrupt both day, mostly due to credit card debts, while every weekend, about five million pecks throng the 300-odd shopping complexes in the country. These habits are among the surprise revelations on why Malaysian consumers cannot cope with the rising cost of living. conspiracy of Malaysian Consumers Associations (FOMCA) discovered that many of those declared bankrupt due to credit card debts were below 40 years old. Another cause of bankruptcy is poor pecuniary management skills.Article from New Straits Times states that 10 million of credit cards had been issued entirely only 30 per cent of card holders is able to meet the monthly repayments. From the article, Chief executive officer of FOMCA Datuk Paul Selvaraj give tongue to it is because of the convenience of credit cards that people seem to prefe r using them rather than cash. He also said that credit card holders do notfeel the immediate transcend of emptying their wallets when they make a purchase. It was reported that those who used credit cards were more inclined to spend 17 per cent more compared with those who used cash. Besides that failing to repay credit card debts is also the cause of bankruptcy. This is because credit card interest rate for outstanding balance is very high.Banks require consumers to pay only the minimum which is 5% or RM50 (whichever higher(prenominal)) of total outstanding balance (debt). If they only make minimum payment, it takes about 2 years to clear all the outstanding balance providing that there is no new spending. On top of high interest rate, consumers are also subjected to finance charges if they do not make unspoilt payments every month. This means, if they make partial payment, minimum payment or do not make payment on or before the payment due date, finance charges will be enforce from the day the transaction is posted to the card history.The relationship between psychographic variables, attitude development and credit card exercise by cardholders in Malaysia.HOW TO OVERCOMEA total of 87,583 individuals were declared bankrupt up to October this year, with 4,651 or 5.1% of them due to unpaid credit card debts. In light of this, the government will be discussing with Bank Negara on conclusion a solution to the problem of high interest rates imposed on credit card users, resulting in many being otiose to settle their outstanding balance. Deputy diplomatic minister in the Prime Ministers Department Datuk Liew Vui Keong said a solution was necessary as the number of credit card users declared bankrupt was vexing with the majority of them being young people (The Sun Daily, 15 December 2010). One way to overcome credit card debt is consumers have to have full payments prior to due date. They will enjoy interest- put worst period for retail transactions for 20 days on retail transactions.Cash advance, balance slay and installment payment plan programs are excluded from interest-free period. Consumers also subjected to late payment charges minimum of RM5 or 1% of total outstanding balance, whichever is higher, up to RM50 if they fail to make payments before due date. If you have problemto settle your credit card debt, the best solutions is to cut the card and stop using it. abet way to overcome credit card debt is pay more than the minimum payment. Always pay more than the minimum amount that you owe. If you can afford to do it, double or triple the minimum payment. This will suspensor you get rid of credit card debt more quickly. If you have ninefold credit cards, you might want to concentrate the bulk of the specie you have available to paying one off at a time. The credit card you should focus on first is the one with the highest annual lot rate.Pay this card off and then move on to the adjoining highest one and so forth. This n ot only gets rid of the worst credit card debt (i.e. the one with the highest interest rate), entirely it gives you a sense of act and peace of mind, knowing that you have one less payment to worry about. Third way to overcome credit card debt is treat a credit card like a debit card. The biggest fallacy of credit cards is that they are additional money to be spent each month. The typical household sees the monthly credit card bill as just another bill to spend money paying off. Worse, many people see responsible credit card use as paying the minimum or slightly more each month. exploitation a checkbook to balance your finances or free financial software such as Mint.com or paid software such as Quicken can help you balance finances and find out there will be enough money each month to pay off the credit card bills.Every time you make a purchase with a credit card, treat it like a debit card and deduct that money spent out of checking or savings accounts. Software can do that a utomatically when linked to the accounts, but a checkbook or simple pen and paper plant the same way. Next, set alerts to repeal missed or late payments. A missed or late credit card payment can put even the most responsible credit card user over the edge and into debt. Interest rates get raised and high fees will tack on finance charges to the bill. Set up free e-mail or text message alerts from your credit card issuers online account management site. If your credit card issuer does not offer online account access, consider finding a new credit card company. Many late fees and missed payments are due to using regular postal mail to keep up with bills and make payments.Online payments are time stamped and come with an e-mail record of statements and payments. Another way to overcome credit card debt is do not spend money that we do not have. This assay and true financial tip holds true for credit cards as well. Credit cards can be an excellent financial animal to establish and bu ild credit. They can also allow responsible users to put on rewards such as cash back or points. Credit cards also act as interest free loans in a pinch with grace periods ranging from 20-30 days for users who can pay the balance off when the bill comes due. Spending on a credit card should coif according to ones financial situation. Responsible credit card use starts with spending less than one has in their bank account month to month. Besides that you essential try not to rack up your credit card bill. If you can avoid it, do not use your credit card at all, as this will just put you deeper into debt.Try to pay cash for what you carry and eliminate the things that you want (even if only temporarily). The horrible thing about credit card debt is that it is so easy for your debt to increase. Write down a list of expenses is also a way to overcome credit debt. It is very beneficial to know exactly where your money is going each month. Money seems to disappear before you even get your hands on it. Writing down a list of where your money goes will get you thinking about certain areas where you can save money. You can change your money habits by taking the time to envision where it is going. When you look at your list (and you should include what you are paying in credit card debt), you will probably be motivated to do what you can to try to hold on to more of your money. Lastly, pay down your credit card debt before you put money in a savings account. Your credit card interest rate is exponentially higher than what you gain from a savings account at a bank. worry rid of the credit card debt first, otherwise it will keep growing. coatingIn conclusion, those who want to avoid bankruptcy do their best to avoid credit card debt to begin with. Bankruptcy can damage your credit score and cause other financial problems. On top of that, the financial strain can begin to take its toll on your relationships. Avoiding bankruptcy requires careful financial planning. We should create a budget and track our spending. persist within our means so that we are not acquiring debt. separately month, pay off our credit cards bill. We can use credit cards as part of our financial spending plan but we need to be careful to avoid carrying a balance. Besides that, we must set aside money for emergencies. That way, ifunexpected expenses come up, we wont be as devastating. Being debt free and having some savings reinforced up and can go a long way toward support us to stay away from bankruptcy and providing us with some of the cash flow we need. With careful financial planning, credit cards can be a helpful tool, rather than a path to bankruptcy.Do not let something so useful become our downfall. The problem with credit card debt is that it is very easy to get into but hard to get out. (Some people associate it with a bad marriage, and it is really similar to it). To get into a credit card debt is even easier than any other debt, because the plastic is just there in out wallet all the time, as an easy solution, and we tend to use it as a quick fix. Credit card debt reduction is although a different story, to get out of credit card debt you needs discipline and planning to reduce your outgoings and change your attitude towards your spending. getting to a stage when you realize that you must eliminate your credit card debt before it gets out of control is kind of scary experience. When you realize that you need to find a solution because there is no other way out, and you cannot carry on piling up interest on your debt.You can start reduce credit card debt with preventing it from increasing and paying off the capital or getting a lower interest credit scheme, therefore reducing your total credit card debt (credit plus monthly interest). Other than following the step by step instructions of your credit card debt integration plan, there are more methods to eliminate credit card debt. You can always seek assistance either at your own credi t card company or an independent credit card debt specialist. Your credit card company wants their money back, so most of the times they are ready to compromise, give you a lower APR or freeze the interest if you agree a credit card debt consolidation plan. You must remember if you are not confident enough to bring off a deal with your credit card company, there are many companies who are willing to support you and also offer free credit card debt consolidation consultation.REFERENCESBooks1. Vickie L. Bajtelsmit with Linda Rastelli, (2008), Personal finance, Wiley Pathways. 2. Sarah Young Fisher and Susan Shelly, (2009), Personal Finance in Your 20s &30s, Alpha Books. 3. Curtis E. Arnold, (2008), How You CanProfit From Credit Cards, FT Press.Journals1. A study of financial awareness among youths, Joyce K.H. Nga, Lisa H.L. Yong and Rathakrishnan D. Sellappan. 2. Malaysian consumers credit card usage behavior, Zafar U. Ahmed, Ishak Ismail, M. Sadiq Sohail, Ibrahim Tabsh and Hasbalail a Alias. 3. The influence of image consciousness, materialism and compulsive spending on credit card usage intentions among youthJoyce, K.H. Nga, Lisa H.L. Yong and Rathakrishnan Sellappan.Web1. http//www.nst.com.my/top-news/easy-cash-turns-many-into-bankrupts-1.5518 2. http//thestar.com.my/news/story.asp?file=/2012/11/23/nation/12361423&sec=nation 3. http//voices.yahoo.com/credit-card-debt-one-cause-bankruptcy-7101354.html?cat=3 ARTICLE