Credit Card Essay
A credit card is a card issued by a financial company to give an individual the capability of borrowing fund often at a point of a transaction. Companies charge interest and offer credit cards as a form of short-term financing. Interest on credit cards is often higher than any form of credit and it is charged a month after any form of purchase. A borrowing limit is pre-set to fit the credit rating of a consumer. An individual can pay for services and goods to a majority of the stores in the United States of America and other countries since a credit card is a popular and convenient method of paying for bills.
Credit cards are effective in the society but they are associated with high risks since they cause personal bankruptcy and credit card delinquency rates to increase. These problems began in the mid-1990.s when financial reports indicated a rise in both bankruptcy and credit card delinquencies. During this period, the United States’ economy was strong although households increased their borrowing rate and pace. As the borrowing rates increased, personal bankruptcy filings also increased at a rate of approximately 79% between the year 1994 and 1998; the highest and fastest rate occurred during the 1991 recession period. This problem has persisted throughout the years because the set regulations to control this situation have not been effective. Individuals also lack knowledge on how to manage debts and make sound financial decisions. This study will highlight the problem of credit card delinquency and bankruptcy.
The problem of high rates of personal bankruptcy and credit card delinquency has brought various consequences in the financial status of both individuals and the companies. People in the society blame the credit card default rates on the lenders claiming that financial companies offer lenient standards, which allow consumers to borrow more than what they are able to repay. Other people blame the borrowers for borrowing money and spending beyond their means. Credit companies create sufficient credit for people to borrow in the society. This causes a majority of consumers to access credit, which they are unable to pay. Consumers overspend because they have money at their disposal and the credit card method is convenient and accepted in almost all the sale points. People have filed for bankruptcy because they have several unpaid credit cards and loans. Individuals get convinced by advertisements and friendly sales people who entice them into credit. The situation leads people to bankruptcy and hence criminal behaviors in an effort to evade paying their debt. The worst consequences reported include increase in household debt, overspending and high delinquency rates.
Banks and other financial organizations incur high costs in losses that are written off yearly and the ever increasing delinquency rates. Other institutions do not write off the losses because they have high levels of revenue from credit card lending and extending the credit to riskier people increases the profitability of the company. Individuals avoid other credit card offers since they carry higher processing and interest rates fees which might force them to default or file for bankruptcy. In summary, the financial companies and personal individual decisions cause these problems in the economy; hence, both parties have a role to play in order to solve this situation.
It is obvious that households borrow a lot of money than required through credit cards. Individuals get access to this card because of the lenient regulations and requirements by the financial companies. The lenient regulations favor households since the amount of credit allocated is always more than what individuals require. The financial companies make high revenue from credit card lending because they attract high levels of interest in comparison to other forms of credit created.
The government should create a mandatory financial class for high school students in order to give every individual a lesson on how and when to borrow funds. Individuals have lost their homes and valuables because of credit card repayment, which attracts high interest rates when a lender defaults payment. Individuals might learn how to manage their finances by prioritizing their expenses and determining when to repay their debt.
The financial companies should lower the credit card limits to affordable and convenient limits that are practical for a student. This might give the young generation responsibility on managing finances at an early age to help them gain skills that will guide them throughout their lives. The companies might also consider lowering the limit on cards after checking an individual’s credit rating. Individuals are allowed to borrow more than what they can repay, which is extremely wrong. Financial companies should not authorize individuals to borrow without the evidence of a clean credit history. This will reduce the number of individuals trapped in bankruptcy and credit delinquency.
The recommended changes are vital in the society since individuals lose their property and businesses because of bankruptcy, losses, and credit delinquencies. The society requires responsible individuals who are capable of paying their debts and making sound financial decisions. The economy in the country is strong, but some individuals lack the purchasing power because they are incapable of paying their debts.
