Credit Card Challenges

Question: Discuss about the Credit Card Challenges. Answer: Introduction Like everything, credit card also has its own pros and cons. In this age of consumerism and commercialization, people tend to buy the things, which are sometimes quite expensive as compared to their income (Reamer, 2013). Thus, they use credit cards to buy the products and pay the credit card company later on with the appropriate interest. This age of globalization has made various companies spend huge money on advertisement and marketing. They tend to come up with reward points on credit cards, discounts on credit cards by this company, premier miles earned to be used for travelling and so on. All this makes people to take credit cards and spend. This is not a good practice. The purpose of the credit card is to provide the additional cushion in case of emergency or when some urgent purchase is required and credit card holder is aware that he will be able to make the payment on time or in few months. But people are using the credit card to live the extravagance lifestyle purchasing t hings that they cannot afford and thus paying huge interests and thus increasing the pockets of Banks and other financial institutions. Analysis When someone makes a purchase using credit card, he is buying using the money of the bank or financial institution. It is a convenient way to make purchases especially in this age of contactless technology where you just have to flash your phone having credit card details and appropriate app in front of terminal (Leeflang, 2014). Then Credit Company will generate the bill or statement having minimum amount that needs to be paid. Misconception of minimum repayment concept This is where the problem starts when people think it is good to pay the minimum repayment. Actually, this is very bad habit and it take years to pay the outstanding balance due to very high interest rates and the compounding interest. Best practice is to pay more than the minimum payment. And ideal way to use card is to make the payment in full always (Worthington, 2015). In such scenarios, one will not incur any cost and continue to enjoy the rewards benefits of card. This activity is the main reason people find it difficult to get rid of debt in Australia. Buy things you cant afford- Some people buy the expensive things and take exorbitant foreign holidays using credit card. Possession of credit card gives them false confidence that they can afford anything (Wang, 2012). When they start missing payments or pays the minimum payment, then the high interest rates makes them to repays huge amount and they struggle to become debt free. It is good to buy the things that you truly afford. Payment history- Missing credit cards payment will affect your payment history and then it will become difficult to get loan if history is poor. Companies like American express charges huge interest rate if they issue credit card to people having bad history. They should educate people about the power of compound interest and how huge it can become. Solution to common credit cards problems Credit card companies should provide more information to people about how the credit card works and educate them that minimum repayment will also incur interest. They should make monthly statements in a comprehensive manner stating from when the interest started and how much is the interest. At the same time, consumers also get them familiar with the working of card so that they can use it for the best features without paying much interest. Consumers should also not purchase expensive things that they can afford using credit cards (Goyal Pandey, 2012). Conclusion To conclude, common but serious problems are discussed that can arise due to the improper use of credit card. Improper use can be due to the unawareness of the consumers also or hiding of the certain facts by the financial institutions or banks. Solutions are also discussed so that people will learn how to use the card effectively. With the above discussion it can be said that the credit card challenges could be avoided with effective system at place. References Goyal, V., Pandey, U. S., Batra, S. (2012). Mobile banking in India: Practices, challenges and security issues.International Journal of Advanced Trends in Computer Science and Engineering,1(2). Leeflang, P. S., Verhoef, P. C., Dahlstrm, P., Freundt, T. (2014). Challenges and solutions for marketing in a digital era.European management journal,32(1), 1-12. Reamer, F. G. (2013). Social work in a digital age: Ethical and risk management challenges.Social work, swt003. Wang, Y., Streff, K., Raman, S. (2012). Smartphone security challenges.Computer,45(12), 0052-58. Worthington S. (2015). Financial literacy a major challenge with credit card interest rates. Retrieved from: https://bluenotes.anz.com/posts/2015/09/financial-literacy-a-major-challenge-with-credit-card-interest-rates.