Will It Be Better If Credit Cards Had Warning Levels? –The Debt Talk
Introduction
The credit card is an American icon. It is cherished and even revered in the United States of America and, increasingly, throughout the rest of the world.
These cards have multiple purposes uses - payment option, a source of revolving credit, and a user-friendly mode of payment.
The credit card expresses something about the essence of modern society and, like an express train, is speeding across the world's landscape delivering American (and more general consumer) culture.
Credit cards offer the benefit of cashless transactions and also allow for purchases over the phone and, increasingly, via the internet.
They also offer consumers the flexibility of deferring payment to a future date, and thus can allow consumers to smooth spending over temporary liquidity shortfalls and because of all this is a credit card is helping to transform much of the world.
Credit Card Debt: The Debt Talk
Every good thing has a bad attached to it and unfortunately, credit cards are not an exception. The use of credit cards is often abused and misunderstood by the individual possessing them, and this eventually leads to out-of-control situations that bring about detrimental effects.
Every time a person uses a credit card, they’re borrowing money from a bank or other financial institution. When they charge something, the card-issuing bank pays what they owe to the merchant that accepted their card for payment.
In turn, they pay the money back to the bank. The most basic thing that the user of credit cards ignore is that by signing up for a credit card, they are agreeing to pay back the money that is borrowed, plus any interest or finance charges that accrue on the amount that is owed until they pay it all back.
Putting simply, credit cards are a type of loan and where there is a loan the word debt is not very far behind.
Should Credit Cards have Warning Signs?
Now, coming to the elephant in the room, should credit cards have warning signs? If this question will be rearranged as—should someone be warned or informed about being in debt? It will be relatively easier to think of an answer to the proposed question in this way.
Any sane answer would most probably be yes and there is a decent reason for the same. Being in any kind of debt, especially credit cards debts is very hard to come out of, due to the way the interests are charged.
Thus, the never-ending cycle can be stressful and often consuming, leaving the affected individual very little room for others things that may require the individual’s indulgence.
Being unable to effectively contribute to even the minimum payments due will also create a negative assessment of the individual’s credit ratings or credit scores, which is vital to any future investment opportunities.
Another very common fact to which most individuals are unaware of is that the credit card companies, upon evaluation, may increase the interest rate charges to “non-performing” accounts.
These accounts that show no significant reductions in the amount owing, since repayments are less than required, will allow the credit card company to now re-categorize such accounts as credit risks, therefore, increasing the interest rates charged.
Another disadvantage of being in debt is the health problems that it can bring about. The consistent burden about how to clear the large pile of debts will keep the individual in a perpetual stress-filled mindset.
There are various factors to be considered from who is responsible to what are the solutions…
Who Is Responsible for High Credit Card Debt?
Role of Consumers: There is no doubt that part of the responsibility certainly lies with consumers—unrestrained consumption is a huge factor. Individual consumers certainly bear some of the responsibility for their credit card indebtedness, but there is a tendency to psychologize and medicalize the problem in popular analyses.
According to this perspective, individuals get themselves into financial trouble because they are ill, because they suffer from such maladies as depression, compulsion, and addiction.
However, although this perspective may explain the financial plight of some who spend their waking hours in the malls and, as a result, find themselves deeply in debt, it certainly does not explain a majority of the cases.
What is required is a more sociological perspective on credit card debt.
Role of Credit Card Companies: Sociologists tend to focus not on the consumer but on the role of organizations and institutions—namely, the credit card companies—in fostering rampant consumerism.
Credit card firms' impulses people to go deeply into debt, and they make it easy for people to do so. The companies make innumerable phone calls and send out tons of mailings offering free cards, high credit limits, and low introductory interest rates.
The banks and other purveyors of credit cards are also constantly seeking new ways to lure people into increasing their indebtedness—for example, by charging their supermarket purchases.
The major culprit are the banks, that have spent fortunes encouraging people to go in the tunnel of debt on their credit cards. They are eager to distribute as many cards as possible because of the huge profits associated with the credit card business.
What can be done to avoid Credit card debt?
On the consumer level: First of all, the consumers of credit cards should stop abusing the card. As the doctors say that the key to good physical health begins with a dose of prevention.
Financial health is no different.
With a dose of prevention, the future finances can get a clean bill of health, freeing the frequent users to live a life of choice and opportunity instead of one of demand and debt, and derive maximum benefit from the credit cards.
The following measures will help to remain credit card debt free:
- Try to stay away from declaring personal bankruptcy as a solution to overwhelming credit card debt. People tending to do so start accumulating new credit card debt almost immediately. Furthermore, bankruptcy carries a stigma that is likely to have an enduring adverse effect.
- The people who find it normal to credit card debt are advised to "take it one day at a time," doing their best to avoid any new debt, but accepting the occasional responsible use of a credit card.
- The acknowledgement of the fact that it is impossible to get out of debt by borrowing more money, is very important, especially by taking cash advances on one card to pay debts on another.
- Actively managing the finances is also an important measure that might seem obvious, but the most foolproof method for avoiding debt is to consistently spend less than one made. Before spending another penny, make sure of a strategy to manage the finances that will help to build net worth.
On Company Level: One of the contributions of a sociological perspective is to show that large-scale institutions like the credit card industry are a major source of the problem of excessive credit card debt, and they must be reformed.
Credit card companies need to put some restraints on themselves as well as on customers who abuse credit cards. Some of the steps might include:
- One measure can be limiting the number of any one type of card that an individual can hold.
- Coordinating offers and acceptances of new cards so people cannot easily acquire large numbers of cards.
- Coordinating credit limits on all cards in the possession of an individual so that it is impossible to run up a total debt far beyond the individual’s ability to pay.
- Immediate cease of the escalating efforts to recruit high school, and perhaps even college, students.
- Immediate cease of the efforts to induce people to purchase essentials like food with their credit cards.
- Making very clear that all money borrowed and all interest accrued must eventually be paid.
Wrapping Up...
One of the main disadvantages of being in credit card debt due to lack of warning is the constraints it creates when the individual is given opportunities that cannot be tapped into due to the debt-ridden situation.
Such chances are hard to come by which makes it even more difficult to let them pass by with grabbing on and capitalizing on them.
Hence, there should be a warning sign, whatever it may be, for the sake of the consumers who are the sole reason for the booming of those firms.
Interestingly, a best-selling author, award-winning newspaper and magazine journalist, marketer as well as the recipient of “Knights of Mark Twain” and much more, Terry Galanoy, has suggested that there should be a warning label for credit cards, like the ones found on cigarette packs.
