You Can Get Bad Debt Through Credit Card Over Spending

Decades ago, personal loans and financial loan from banks were not very popular in the industrial market, thus consumers buy their commodities with cash, and debts were not a major problem for individuals as well.

Today, the situation has changed tremendously. Consumers tend to buy everything with their credit cards and they rarely pay or carry cash with them. This often leads to overspending, and overspending leads to over commitment, which leads to bad credit.

Over the years, the rate of borrowing of individual families has increased to 12.5 as of the month of December last year; this is alarming because if nothing is done about it, it will be a sure blow to the United States’ economy. The government has already tried to control the situation by imposing the Guidelines to Responsible Lending last September of 2010.

Banks are starting to make a business out of customers by making personal loans easier to apply for. They have come up with many marketing strategies to encourage customers to borrow from them; the most recent is a preapproved loan which would entitle someone to a personal loan without the need to sign any documents.

Good debts can get you interest revenues from the loans you have, however if you are not going to plan on these debts, they might back fire and turn into bad debts. The lending market is still healthy for now, and financial institutions are still providing loans for people even if the Bank Negara is ruling against it.

Here are some situations that you must be careful not to over-commit because the repayment of your loan might become a huge problem.

First, if you have lost your job and you have too many liabilities to pay and no means to pay them until you get a new job, then you are in trouble. To save yourself from this situation you should make sure you have saved money to sustain you in case of emergencies.

Second, if you your debts become more expensive. According to statistics by the Negara Bank, the basic household expenses have grown to 88.6 per cent from 1993 to 2010. It is in our nature to spend more when we have more money, thus in order to prevent trouble we must learn to be conscious in our spending all the time regardless with how much money we are carrying.

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