Credit Card Debt: Nature or Nurture

ПечатьLet’s face it, credit card debt is almost the norm today. We are accustomed to using credit cards as part of our every day life. When used wisely, the benefits of credit cards are very appealing – they are easier to carry than cash, can help us build up our credit rating and offer rewards we desire. But the very nature of credit cards, combined with our own spending habits, can lead to serious debt problems.

Causes of Credit Card Debt

Sometimes the causes of debt are beyond your control. Debts due to divorce, job loss, income reduction, or illness are all too real and are generally unexpected. But what causes one person to have a higher level of credit card debt than someone else in similar circumstances? We look at some of the top reasons why you may have a propensity towards accumulating excessive credit card debt.

It’s In Our Nature

A study on genetic makeup several years ago suggested that possessing a particular gene linked with impulsive behaviour might increase the likelihood that you will accumulate credit card debt by up to 16% compared to someone without this ‘mood’ gene. But does that really mean you might be doomed to a life of credit card debt? Not necessarily. If you have an impulsive nature and see something you want, stop before your shop. Ask yourself some tough questions – Do I really need that item right now or can it wait while I research better options? Is there something I’d rather do with that amount of money? Taking the time to think through every purchase can help eliminate unnecessary spending and debt.

Did you know that when you use your credit card you are often willing to pay more than when using cash in the exact same situation? Taking out a credit card to pay for a purchase seems to be less painful than counting out the same amount of money in cash. Here’s a question. Have you ever charged an item and not even looked at the total on the bill when you signed?  That form of sticker blindness, as compared to sticker shock, can contribute to spending more than you can afford to repay.

Financial Literacy

As a form of debt, credit cards are pretty complex. Your credit card balance is made up of a complicated ebb and flow of payments, new purchases, interest charges, fees and penalties. Now add in reward programs, transfer payments and cash advances and it’s little wonder it’s hard to keep track of exactly how much debt you are accumulating. We also have a tendency to underestimate how long it will take to eliminate our debt. The concept becomes quite hard to grasp when payments barely cover interest and you are adding to your balance with new purchases each month. Financial literacy skills – understanding how to manage your credit card debt – can help.

Credit card statements must now disclose how long it will take to pay off your current balance in full if you pay only the minimum payment each month. Make it a habit to look at this number, along with your total outstanding balance each and every month. If you do carry a balance, use our credit card debt repayment calculator to estimate how much you will need to pay each month to eliminate your debt within a reasonable period of time. If your debts are too large to repay on your own, try our debt options calculator to understand what your payment might be under different debt relief solutions or talk to an expert to find out how you can become debt free.

You can take charge of your finances. While sometimes things can happen beyond your control – like an illness or job loss – learning to identify your own propensity to use credit is a great first step in managing the road to eliminating your debts once and for all.

Category: Credit Card Debt |

Apr 4, 2013

About Sharon Hoyes

Sharon Hoyes, CA, CPA is a Chartered Accountant and Managing Editor at MoneyProblems.ca writing about personal finance and consumer news and how it affects your debt.

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