BANKRUPTCY AMONG YOUNG PEOPLE BECAUSE OF CREDIT CARD
Consumer credit can be defined as a debt that someone incurs for the purpose of purchasing a good or service. Common forms of consumer credit include credit cards, store cards, motor (auto) finance, personal loans (installment loans), consumer lines of credit, retail loans (retail installment loans) and mortgages. The spread of credit card ownership and usage across developing Asia Pacific countries has been overwhelming. A review of literature on credit card reveals that most studies have been undertaken in developed country settings. Credit cards were first issued in the USA in the early twentieth century. Since then, they have become a major system for exchange of transactions (or payments) that stimulates household and personal spending even in many developing countries of the world (Watkins, 2000). In Malaysia, cards were first introduced in the mid-1970s. At the early stage, credit cards were only issued to professionals or those considered successful businesspersons by card issuing companies. By the end of 1970s, an estimated 20,000 cards were issued. During that time, owning a credit card was considered a symbol of prestige. However, with the passage of time, eligibility criteria for obtaining credit cards have been increasingly relaxed. As a result, the number of cardholders reached to about three million by the turn of the last century. One of the fastest ways to bankruptcy is the misuse of credit cards. One of the more common reasons that people end up filing for bankruptcy is due to too much credit card debt. Credit cards are so often too seductive because they offer the ability to buy what we want now. We can then pay it off later, using very small and affordable monthly payments. Credit cards offer a way for us to make attractive purchases that we might not be able to make otherwise. Suddenly, it seems as though we can afford anything we want. The low monthly payments seem reasonable and easy to fulfill. That is one of the biggest problems associated with credit cards. It is easy to forget about the high rate of interest that we are paying instead we consider the low minimum payments we make each month and count that our self is lucky. We can continue for years, making minimum payments each month and building up credit card debt. However, one day something may happen. We could have our hours cut at work, or maybe our minimum payment will be increased. We might have a costly hospital stay, or our home may be struck by a natural disaster not covered by our home insurance. Suddenly, our credit card payments do not seem as affordable as we once did. After looking at our situation, it dawns on us how much credit card debt that we have. The only way out of our financial mess may seem like bankruptcy. An article from New Straits Times Online dated 14 November 2011 has highlighted the issue of easy cash turns many into bankrupts. Easy cash here means credit card. Credit card is a familiar type of open-end credit. The term credit card is used to cover a variety of types of cards, some of which actually do not involve credit. In general, a credit card is a plastic card printed with an account number and identifying the holder as a person who has entered into revolving credit agreement with a lender. From the article it states that Malaysian youth are becoming increasingly reckless with spending, thanks in no small measure to the convenience offered by credit cards. An average of 41 Malaysians are declared bankrupt daily, with the majority failing to repay their car purchase loans.
BANKRUPTCY STATISTICS BASED ON CREDIT CARD DEBTS IN MALAYSIA
The Department of Insolvency Malaysia (MDL) had restructured 80,348 bankruptcy cases from 2005 to May 2010 categorized as following: 31,950 cases – Malay
26,805 cases – Chinese
7,661 cases – Indians
13,932 cases – Others
Some of the cases involved in different type of loans that caused the...
References: 2. Sarah Young Fisher and Susan Shelly, (2009), Personal Finance in Your 20s &30s, Alpha Books.
3. Curtis E. Arnold, (2008), How You Can Profit From Credit Cards, FT Press.
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