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Steering clear of credit card debts and bankruptcy

[Monday, December 27th, 2010]

If there is a huge debt accumulated on the credit card one can be rest assured that it would mean disaster as well as the path which leads to bankruptcy and one is left with no credit in case of unexpected expenditure or emergencies. One has to get to the bottom of the issue in order to get a better understanding of the contributing factors. One of the more genuine causes would be a loss of job or a mortgage loan that would have gone wrong, and in some cases it would be due to the lack of savings.

Card debt is a silent killer and can strike any time if one is not careful with the finances. It is always tempting to make huge purchases when one can ill afford, especially when this can be done with the swipe of a card and then payments can be made easily every month. With this kind of a lifestyle one would certainly not be able to save as the whole concept is to use the card and pay later. This is a deterrent to savings.

The avoid bankruptcy one must have a savings of at least 2 to 6 months’ salary and saving for a rainy day and avoid credit as much as possible. One should never use a credit card for emergencies for the simple reason being that one would have more than one emergency in their lifetime and the minute the card is swiped for the first emergency, all credit would be exhausted and there would be nothing remaining for the next emergency.

At least 60% of the American population has balances in banking accounts which is lesser than their paychecks. If there is a medical emergency for instance and the costs are $2,000 and if there is a delay in getting the paycheck, then one ends up borrowing $2,000. Add to that an existing card debt of around $8,000 then the figures are $10,000 in debt already. The credit limit gets maxed out and there is no credit left for any other emergencies that might crop up. At that point if one does not have a loan option or if there is no friend or family member who can help out, then there is no way the bills can be paid up and that would be the path to bankruptcy. At such times an emergency reserve would come in handy.

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