Disadvantages of Credit Cards

Disadvantages of cite Cards Mehmetcan Sevim 070090077 Faculty of Management Faruk Cetiner 070090005 Faculty of Management Ceylin Ul expenditurel 020090306 Faculty of Architecture position 201 Esra Sancak celestial latitude 28, 2011 Disadvantages of Credit Cards Thesis It is argued that consultation peak be beneficial for individuals however they turn many financial problems, trigger consuming and cause mental conflicts in long-term menses. I. Financial A. Penalty rate 1. Late pays 2. Exceeding reference work limit B. Transaction slant 1.Interchange fee 2. Foreign performance fee I. Consumption A. Trigger effects 1. Consumer culture 2. Compulsive buying B. Spending addiction 1. Overspending 2. Indebtedness III. Psychological A. Behavior 1. Compulsive buying fashion 2. bills attitudes B. Mental 1. Depression 2. Self Esteem Finance can be defined as an art which leads to maximize return against risk. Dramatically increase at industrialization required more specific manage ment and revealed many departments of companies such as marketing, sales, human resources.Finance provides pecuniary resources to these departments and also argon used for cash emanate management. When finance became more important in business life, finance industry emerged. Finance industry provides services related with the management of money. Banking service is the most ongoingness arena in the finance industry. It provides personal, commercial and mortgage loans which is related with ascribe system. Credit card which works to loan money monthly to consumers, is the most important section of recognize system. People can buy goods, services without cash thanks to credit separate.It can be seen that credit card usage is so favourite in banking system and most of the credit card holders have more than one credit card. It is argued that credit cards are beneficial for individuals however they bring many financial problems, trigger consuming and cause psychological conflicts in long-term period. First of all, credit cards bring difficulties for consumers related with financial problems. Credit cards can be so dangerous financial tool when it is used by unconscious costumers. Financial difficulties related with credit cards are also derived from lack of knowledge virtually credit card usage.The first significant financial problem for credit card users is penalty rate. Late payment is one of the reasons which gives rise to penalty rate. As Buttel explains, there is no difference between time periods when people paid their credit card payments late. Grace period changes between 20 and 31 days and even if card holders make their payments one day late, they are assailable penalty rates. Moreover, although payment is made in front the new grace period, credit card holders could be charged penalty rates if they dont pay their current bill(2003,para. 8-11).This is why it is important that credit card holders should be careful about making their card payment s on time. Furthermore, exceeding credit limit is some other reason of penalty rate. Buttel states, according to the Consumer Action, credit card holders are exposed to pay high payments and over limit fees with be dragging customer limit d proclaim under the current equipoise by some credit card issuers (2003, para. 14). Clearly, some credit card issuers fox about credit card limits. Apart from penalty rate, credit cards also result transaction fee. To begin with, credit card holders suffer from interchange fee.When customers choose to pay with credit card instead of cash, they usually exposed to pay higher prices related with interchange fee. Mitchell states, Interchange fees not only enhance the profits of large banks at the expense of retailers, but ultimately these fees are paid by consumers in the form of higher prices (2009, para. 11). Obviously, credit card usage makes retailers raise their prices. In addition, foreign transaction fee is a variable star charge that card ho lders usually can not chase. In foreign countries, it is possible that credit card holders have to make more payments.As Gerson explains, foreign transaction fees are hided by some issuers and they are so hard to be followed even if the card holders ask them from the customer service or the corporate office. Also, if cardholders use a card like Bank of America-issued Visa abroad, they have to pay Visa fee in addition to Bank of Americas own fee. This clearly shows the risk of using credit cards in foreign countries (2008, para. 3-5). Consequently, credit card usage brings along many problems related to transaction fee. insurgent of all, credit cards also have many trigger effects on consumption.The first major problem is the impacts of changing consumer culture and how it reforms the psychology of the credit card users. As Sheth indicates that triggers of consumption attitudes are mostly provided by the independence that is connected to process of production and the increasing for ce of authorization, which are also split of the consumer culture (2003,para. 3). This is a fundamental and a detailed explanation of the connection between trigger effects of consumption and cultural consequences. Furthermore, compulsive buying is another triggering impact of credit cards.According to Roberts, Jones, in the realm of consumer deportment, credit cards can certainly be construed as promoting spending by making the transaction simpler or by removing the immediate need for money (2001, p. 220). It is obvious that credit cards stimulates spending in consumer behavior by many ways. In this case, these two facts are truly supporting the idea that credit cards are triggering consumption attitudes. Spending addiction is another outcome of credit card based consumption. i of the results of this addiction comes to the scene as the overspending attitude.According to Roberts, Jones, increasing number of indebted people creates a psychology that consents overspending and exces sive shopping as a normal behavior which is expected to be changed in time (2001, p. 214). This fact explains the general judgement of overspending behavior among indebted customers. Moreover, liability is another significant impact of spending addiction. wire-haired pointing griffon states that, instead of accepting indebtedness as a moral failure, mischance is a commonly approved excuse that obstructs making other approaches about the topographic point (2003, p. 4).This fact clarifies that misconceptions about indebtedness in consumer psychology can orient credit card users negatively and can give rise to unconscious consumption. Eventually, overspending and indebtedness can be counted as the major consequences of spending addiction which as it explained before- is triggered by many factors. The last and most dangerous effects of credit card usage are considered as psychological effects. First of all, credit cards cause some differences on consumers behavior. Credit cards provi de a financial confidence even if the users financial situation is not reliable.Consumers buy goods and services by money which they had not earn, that situation causes errant consuming desire. As Parecki states, Many researchers define compulsive buying behavior as a form of chronic addiction that is an endless cycle of move to satisfy that which cannot be satisfied. Instead of creating healthy interpersonal relationships with other people, compulsive buyers replace their love and trust in the acquisition of objects (1999, p. 4). This definition clearly leads us to negative effects of compulsive buying behavior.In addition, credit card usage also causes price sensitivity of consumer which becomes unbalanced. As Fogel and Schneider cited in Roberts and Junes, irresponsible credit card usage is related with the money attitudes of power and prestige but not price sensitivity (2010, para. 10). Credit cards cause irresponsible behavior because of the money attitudes of power and prest ige. As a result, credit card usage changes consumer habits in a negative way. The second psychological effect of credit cards is causing mental disorders. Credit card usage and card debts mostly lead to depression.Card debts getting higher and higher by default interest, and consumer becomes hopeless about clearing that debt. As Stevenson cited in Andrews and Willing explains, when the negative experiences are researched according to their effects on anxiety and depression level, the financial strain has been shown as %21 among participants (2008, p. 5). Financial issues mostly trigger depression and anxiety. Because of the default interest, situation gets worse and worse. Beyond that, card debts and uncontrolled credit card usage leads consumer to lowering self-esteem.As Parecki cited in Cole explains, compulsive buyers see themselves worthless and try to find ways to self-destruct. The consequences whitethorn include unemployment, bankruptcy, social isolation and divorce (1999,p. 9-10). Lowering self-esteem may trigger self-destruct. All of the above show us how uncontrolled credit card usage damages mental health. References Buttel, A. E. (2003, September 25). Credit card penalty ratesMistakes that trigger default APRs, from http//www. creditcards. com/credit-card-news/credit-card-penalty-rates 1267. php Gerson, E. S. 2008, November 21). Top credit card issuers foreign transaction fees, from http//www. creditcards. com/credit-card-news/foreign-transaction- conversion-fees-1276. php Mitchell, S. (2009, May 5). Soaring Credit Card Transaction Fees Squeeze self-sufficient Business, from http//www. newrules. org/retail/news/soaring-credit-card-transaction- fees-squeeze-independent-businesses Sheth, J. , & Maholtra N. (2003). Global Consumer Culture. Retrieved October 18, 2011 from http//www. uwyo. edu/sustaindevsupport/docs/Global%20Consumer%20Culture. df Roberts, J. , & Jones E. (Winter 2001). Money Attitudes, Credit Card Use, and Compulsive Buying among Ame rican College Students. The Journal of Consumer Affair, 35(2), 213-231. Griffin, B. (2003). Reviewed from The Character of Credit. Personal Debt in English Culture. Finn, M. Retrieved October 18, 2011 from https//www. history. ac. uk/reviews/review/435 Vohwinkle, J. (n. d. ). Examine the Roots ofOverspending. Retrieved October 11, 2011 from http//financialplan. about. com/od/savingmoney/qt/Overspending. htm