Credit Card debts: Causes and Prevention

Here is how to tell when you are too deep in credit card debt: if 15% or more of your monthly income goes to pay your credit card bills, you have triggered one of the many warning signs that your credit card debt is out of control. There are other triggers, too: paying the monthly payments on one credit card by taking out a cash advance on another credit card.

Credit cards give you protection for your purchases, allow you to shop on line, and provide a cushion in case of emergencies. However, people who overspend by using credit card have a hard time making ends meet and trouble saving for the future. The negative consequence of using credit card is that you will spend more if you use credit cards. When you pay cash, you can "feel" the money leaving you. But, this is not true with credit cards.

Credit cards are not free money. In fact, they are really high interest loans in disguise. Here is a breakdown of some typical credit card fees:

Finance charge: This is an interest charge (can be as high as 25 percent) on the unpaid portion of your bill each month.

Annual fee: Some companies charge yearly membership fees of anywhere from $20 to $100.

Cash advance fee: Avoid cash advances—fees are steep, and interest rates are usually higher.

Late payment fee: Paying late can also result in high interest rates.

Some of credit card holders pay only the minimum payment, practically guaranteeing a lifetime of debt if they do not change their credit card habits. So what is the solution?

Develop a budget: The first step toward taking control of your spending is to do a realistic assessment of how much money you take in and how much money you spend. Start by listing your income from all sources. Then, writing down all your expenses, even those that seem insignificant, is a helpful way to track your spending patterns, identify necessary expenses, and prioritize the rest.

Keep your credit limit low: A low credit limit will help you resist the urge to splurge. If you receive a congratulatory letter informing you your credit limit has been increased, you should call the credit card issuer and decline the offer. If the issuer would not do it, close the account.

It have been said that guns don't kill people; people kill people! In a similar vein, credit cards all by themselves do not get people into trouble. Personal finance is 80% behavior. Thus, you need to cut out habits that make you spend more.