Credit Card Usage and Debts

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Credit card usage has advantages and disadvantages depending on the consumer’s pattern of use. The prudent and right use of credit card decreases liquidity risk of individuals and provide additional resources. However, unconscious and over budgetary limits’ credit card expenditures, may cause individuals to have excessive debt creating financial difficulties or leading to bankruptcy. Therefore, to decrease credit card indebtedness and to have a conscious usage of a credit card, individuals must have information about financial issues and credit cards. Numerous studies used college student samples to examine factors associated with credit card borrowing behavior. Hayhoe (2000) found that affective credit attitude, financial practices, and financial stressors are associated with holding credit cards with a balance. A few studies studied credit card borrowing behavior using data from developing countries. Wickramasinghe and Gurugamage (2009) use data from Sri Lanka and found that the debt ceiling contributed significantly to the indebtedness of the credit card. Lyons (2008) identified several demographic and financial factors related to having credit card debt over $1,000. Wang and Xiao (2009) showed that purchasing patterns and social networks affected credit card indebtedness.

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Dittmar (2007) stated that compulsive consumers have an irresistible urge to buy, leading to continued consumption, even after being aware of the adverse effects on their personal and social lives, as well as their financial situation. Similarly, Koram (2006) stated that, once consumers lose their ability to control the buying process, they will buy things that they might not use, on a larger scale than necessary and beyond the allowed amount of their financial funds, resulting in adverse consequences, such as distress and financial problems. Roberts and Jones (2001) concluded that the main negative consequence generated by compulsive buying behavior is the biggest debt. Faber and O’Guinn (1992), instead, state that individuals with these buying patterns, when questioned about credit cards use, mentioned higher spending values that they could honor. Financial problems, such as uncontrolled spending and high debt levels, as well as credit management problems and intense and irrational use of credit cards, are reported as compulsive buying results (O’Guinn and Faber, 1989; Roberts, 1998). Within this scope, one expects to find a positive association between compulsive buying and credit card debt. The study by Roberts and Jones (2001) found that compulsive consumers tend to spend more, have some sort of debt, and making faster decisions regarding purchases when armed with a credit card. Properly used credit cards can provide financial security and flexibility. But their uncontrolled use exposes the user to serious financial risk. An important stream of psychological research dealing with credit cards as a trigger of spending behavior has its basis in the experimental study of Feinberg (1986) who showed that credit card stimuli increase the magnitude, probability, and speed of paying. Feinberg (1990) claims that the results of studies which have not supported (Hunt, 1990) or only partially supported (Feinberg and Meoli, 1987; Shimp and Moody, 2000) the credit card effect could be attributed to the various social and historical contexts in which they were undertaken. It is generally agreed that possession of a credit card is directly related to overspending. Because it creates an impression of income and spending capacity, which real money does not make it more difficult to control personal cash flow. Norvilitis, (2006) reported that credit card owners’ total indebtedness was at that time around 35 percent higher than it was for those who did not use them. Indebtedness and even bankruptcy are the inescapable financial consequences of compulsive buyers’ general attitudes towards money and, specifically, the irresponsible use of credit cards as a means of financing their compulsion.

Norvilitis and SantaMaria (2002) mentioned that one’s psychological health declines when the ability to manage money and spend wisely decreases. The more stressed person has the higher possibility of writing a check with insufficient funds. Conversely, those with lesser amounts of credit card debt had less financial stress and were more apt to save money (Hayhoe, et al., 2000). 

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