The Rising Financial Burden Of Overconfident Consumers In The Marketplace

Use of Credit and Debit Cards

Discuss About The Overconfident Consumers In The Marketplace.

In the current time period, with the advent of new and improved technologies and digitalisation, there has been an observation that there has been a rise of new and improved financial techniques with the help of which financial transactions in the current world are made easier. The consumers as well as the sellers are able to buy and sell their products at ease with the help of which standard of living as well financial transactions are made easier (Zimbardo, Clements and Leite 2017). The advent of new financial tools are techniques are observed with the use of debit and credit cards with the help of which the consumers can undertake transactions without the use of cash and thereby reducing the burden of carrying cash. However, it is seen that these uses lead to various issues and problems that hampers the lifestyle of the individuals (Gan et al. 2016). This has led to the issue that purchasing products with the help of credit cards costs us more than the amount that is paid by cash and therefore this has created a pertinent issue in the current world. The essay would therefore look to address the issue and discover the factors that have led to the creation of this phrase.

In the current time period, there has been an observation that use of credit and debit cards has increased and this has improved the lifestyle of the consumers. The use of cash has reduced and therefore the consumers can undertake cashless transactions that reduce the time of making payments and purchasing a product. However, purchasing products with the help of the credit cards leads to the payment of extra money for the product that would costed less if paid with cash.

In order to understand the process that is used in credit cards, it is essential to have knowledge about credit cards. It is seen that credit cards are cards with the help of which one can make purchases without paying any cash and the payment is made by the bank who has issued the card (Awanis and Chi Cui 2014). The bank on behalf of the card holder makes the payment and it is seen that the money is not taken from the bank accounting of the card holder. Therefore, it becomes the obligation of the card holder to pay back the debt that is taken by the bank.

Factors Contributing to the Debt Trap

Grubb (2015) explained that credit cards have become an essential commodity for the consumers at the current time period and it is seen that there has been a rise in the use of credit as time is going by. The most important thing that needs to be taken into consideration is to discover the benefit of the banks and the other financial institutions to make payments on behalf of the consumers. Gill (2016) cited that the bank charges an interest over the card that has been issued and the interest is fixed and even in cases when no transactions are made, the banks deduct the minimum fee charge from the consumers.

It is seen that most of the consumers prefer to undertake transactions with the help of the credit cards and accordingly they are ready to pay the interest for the use of the card. The interest that is paid by the consumer’s acts as the additional payment that one has to pay for the product in order to make purchases with the card. This additional money is not required in circumstances if the payment for the product was paid with the help of cash. The consumers are ready to pay with the card as they are looking into the fact that they do not need to pay for the product instantaneously but can pay later on at after a certain point of time. The issue that arises with this kind transactions have been that a consumer can undertake purchases out of their limit and thereby later on are unable to pay for the same as they do not have the income source to do so.

There have been several issues like this that has taken place and has led to financial crisis as well. Once the consumers are unable to pay for the money they have used for the purpose of transactions, it leads to penalties charged by the companies over the debt that is due. It is even seen that credit cards have an impact on the customers being too aggressive with their purchases and therefore overlook their limitations. The banks levy a huge amount of interest on the transactions that are made and therefore increase the financial burden of the consumers. Campbell (2016) addressed the fact in certain products cash discounts are offered if paid with cash but such offers are not available if paid by credit cards. One of the significant features that have been identified has been the fact that when a transaction is done by credit cards, the banks even levy an interest on the seller as well and therefore it is seen that the sellers price their products accordingly in order to meet the payment of interest that they have incurred.

Hidden Costs of Credit Cards

Credit cards are actually debt traps because of the fact that the customers need to a pay a minimum of the overall amount that has been used and once the customers are unable to pay for the same within the desired timeline then a huge amount of penalty is charged that increases the financial burden on the consumers. As the amount creeps on climbing this creates a burden for the consumers and then in order to pay for the debts they take additional loans from other sources in order to pay for the existing debts. Therefore, it is seen that the debt creeps on increasing and becomes an ongoing cycle.

Karger (2015) explained the fact that credit cards are looked upon as a kind of financial borrowing. The consumers feel that they can purchase the product now and pay for the same at a later point of time but it is seen that there are certain risks as well. Bos, Carter and Skiba (2018) highlighted that if the customers are unable to pay for the balance that has been accounted for every month, then the interest that is levied starts growing. In this case, the debt that has been due can rapidly get out of control and this happen during the circumstances when the customers only pay for the minimum amount that needs to be paid on a monthly basis.

There are several other issues as well that are related to the additional payment that has to beared for purchasing through credit cards. It is seen that there are several hidden costs as well. De Quidt and Ghatak (2018) expressed that the rate of interest that is levied is not only the expense of the credit card. There are other fees that are charged as well and one of them has been the late charge which is levied when one is unable pay the money within the desired time frame in a month. The customers even have to pay a penalty in case they cross over the credit limit. This takes place more often as once the customers get the taste of the usage of credit cards they become limitless when making the purchases. The customers feel that they would be able to pay back for the money in the future but are unaware of the fact that one may have to pay much more from the original purchasing price. Therefore, it is essential from the point of view of the customers to maintain a track of all the expenses and thereafter pay the bills on time (Cohen 2016). It is even seen that credit cards have the option that allows the customers to withdraw cash as well. However, the banks and the financial institutions charges a fee on that one as well and therefore additional interest would be charged for withdrawing money which in most of the cases are unknown to the users. The use of credit cards increases the impulsiveness among the customers and therefore this is the main factor that leads to the creation of debts. Kimball (2015) explained the fact that the customers are aware of the interest fee that is charged every month for the purchases they have paid. The rate of monthly interest has been low, but what the customers have overlooked has been the fact that if the monthly rates are clubbed on a yearly basis, one would observe that the rate of interest goes up a huge percentage (Lowry 2016). Therefore, the customers have to pay a large amount as interest, and this amount is actually the additional price paid for the yearly purchases that have been done and if calculated properly one can have an idea that the customers pay approximately same amount of interest with respect to the amount that is paid to purchase the products. Therefore, it can be said that credit cards are actually a huge debt trap for the customers and even though they are making lives easier for the customers, they are levying additional amount on the customers for making their lives easier.  There are several factors that have led to the creation of debt traps for the customers and one of the significant factors has been the availability of easy credit. The customers are aware of the fact that easy credits are available to them with the help of which they can make purchases but the thing that they are unaware of is the fact that this is a kind of borrowing and therefore the credits gets increased as the usage increases (Agarwal et al. 2017). The other factor has been the lack of financial education among the customers and therefore they are unaware of planning their financial activities in a proper manner with the help of which they can limit their use of credit cards and marketing a fixed balance every month with the help of which the customers would be able to pay off the debt that has been incurred.

Avoiding the Debt Trap

Harper et al. (2018) explained that these kinds of debts can be avoided from the perspective of the customers if they undertake an effective plan and strategy. It is seen that the customers firstly need to educate themselves financially with the help of which they can regulate their financial activities and accordingly reduce the use of credit cards and budget their transactions in a month. The customers can even increase the use of their debit cards for the purpose of transactions as it is seen that debit cards does not charge any interests as the money with the help of which the purchases are paid are coming from the bank account of the customers only. In this case, the customers are paying out from their own savings and therefore this is not considered to be a credit (Peyton 2015). The transactions made through do not have any kind of hidden costs and therefore the customers are expected from paying additional money for a product that would have costed less if purchased with cash.

Conclusion

The assessment of the topic that has been taken into consecration explains the fact that use of credit cards is a massive issue that is existent globally and therefore it is on the hands of the customers and the consumers to create an understanding of the debt trap credit cards are associated with and how these traps can hamper their daily life. It is not advisable not to make use of credit cards but the results that have been attained looks to address the fact that the use of the credit cards can be controlled and can be used only during emergency purposes and the customers need to create a limit of use and maintain a proper balance every month in order to pay the credit dues and reduce their level of financial burden. In order the use of paper cash, the customers can make use of debit cards that even acts as a cashless transaction and reduces the carriage of cash from the side of the consumers. 

Reference List

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