Question

Julio and Juliana say they use credit cards all the time. They always intend to pay them off by the end of the month, but they often don't. In fact, their credit card debt has been rising recently. Since they know that you recently have taken a financial planning class, they ask you how they should handle credit card debt. What would you recommend for the following?

1. Pay off all credit cards assume there are 3.

2. Corrective/preventative steps to prevent a reoccurrence.

3. Alternative to credit card use.

p.s: It's a weekly discussion, please reply with at least 5 sentences or more

Answer 1

From the case there is interpretation that they have either high expense or lower income than there expense. Credit card purpose is to increase liquity for an individual because an individual cann't appraoch very frequently to bank and also bank cann't furnish loan frequently to any individual.

The step or precaution or preventive steps will be:

1) All 3 credit card shouldn't have the same payment day of the month, if the family get salary on diffrent date (mean if income is coming only at one time in a month). If salary credit on any particular day of the month then fix single date for all 3 credit card so that you won't take loan on any of the credit card. Fix payment day in such as way that payment date fall within 5 days of credit of salary or income.

2) This is behaviour problem need to change it.They have to start give priority to repay their outstanding liabilities instead of start spending money whenever their income or salary credit in their account.

3) The combine credit card limit shouldn't be more than 80%-90% of their famly income. 10% to 20% of their family income will be kept for emergency.

4) the alternative of credit card is debit card, Automated Clearing House (ACH) Transfers, loan etc.

5) Should start reducing their non important expense.

6) Should start saving extra for repayment of credit card fund by saving every month. With in 4-5 months, the saving should be equal to one month credit cards imits after paying all expenses. And on further build up the fund this will act the backup for repayment.