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Consumer credit can be defined as a debt that someone incurs for the purpose of
purchasing a good or service. Common forms of consumer credit include credit cards, store
cards, motor (auto) finance, personal loans (installment loans), consumer lines of credit, retail
loans (retail installment loans) and mortgages.
The spread of credit card ownership and usage across developing Asia Pacific countries
has been overwhelming. A review of literature on credit card reveals that most studies have
been undertaken in developed country settings. Credit cards were first issued in the USA in the
early twentieth century. Since then, they have become a major system for exchange of
transactions (or payments) that stimulates household and personal spending even in many
developing countries of the world (Watkins, 2000).
In Malaysia, cards were first introduced in the mid-1970s. At the early stage, credit cards
were only issued to professionals or those considered successful businesspersons by card
issuing companies. By the end of 1970s, an estimated 20,000 cards were issued. During that
time, owning a credit card was considered a symbol of prestige. However, with the passage of
time, eligibility criteria for obtaining credit cards have been increasingly relaxed. As a result, the
number of cardholders reached to about three million by the turn of the last century.
One of the fastest ways to bankruptcy is the misuse of credit cards. One of the more
common reasons that people end up filing for bankruptcy is due to too much credit card debt.
Credit cards are so often too seductive because they offer the ability to buy what we want now.
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We can then pay it off later, using very small and affordable monthly payments. Credit cards
offer a way for us to make attractive purchases that we might not be able to make otherwise.
Suddenly, it seems as though we can afford anything we want. The low monthly payments seem
reasonable and easy to fulfill. That is one of the biggest problems associated with credit cards. It
is easy to forget about the high rate of interest that we are paying instead we consider the low
minimum payments we make each month and count that our self is lucky.
We can continue for years, making minimum payments each month and building up
credit card debt. However, one day something may happen. We could have our hours cut at
work, or maybe our minimum payment will be increased. We might have a costly hospital stay,
or our home may be struck by a natural disaster not covered by our home insurance. Suddenly,
our credit card payments do not seem as affordable as we once did. After looking at our
situation, it dawns on us how much credit card debt that we have. The only way out of our
financial mess may seem like bankruptcy.
An article from New Straits Times Online dated 14 November 2011 has highlighted the
issue of easy cash turns many into bankrupts. Easy cash here means credit card. Credit card is
a familiar type of open-end credit. The term credit card is used to cover a variety of types of
cards, some of which actually do not involve credit. In general, a credit card is a plastic card
printed with an account number and identifying the holder as a person who has entered into
revolving credit agreement with a lender.
From the article it states that Malaysian youth are becoming increasingly reckless with
spending, thanks in no small measure to the convenience offered by credit cards. An average of
41 Malaysians are declared bankrupt daily, with the majority failing to repay their car purchase

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The Department of Insolvency Malaysia (MDL) had restructured 80,348 bankruptcy cases from
2005 to May 2010 categorized as following:

31,950 cases Malay

26,805 cases Chinese

7,661 cases Indians

13,932 cases Others

Some of the cases involved in different type of loans that caused the bankruptcy:

19,380 cases for failing to settle hire purchase loans

9,464 cases for failing to settle personal loans

8,786 cases for failing to settle business loans

6,022 cases for failing to settle housing loans

4,417 cases for failing to settle credit card debts

4,291 cases for failing to settle corporate loans

3,726 stood as guarantors

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The proliferation of credit cardholders has brought an indiscriminate spending by users

with many side effects. Many Malaysian consumers seem to display excessive buying behavior,
commonly known as compulsive buying. Easy availability of credit and compulsive buying has
led to many adverse consequences such as addiction to shopping and excessive debt.
Another noteworthy feature of card users in Malaysia is that they use the card to grant
loans for themselves. It is easier to obtain credit cards in Malaysia rather than applying for
personal loans, which requires the applicant to comply with more formalities like providing
guarantors or collaterals. It was reported that outstanding debts from credit card holders
amounted to RM15.719 billion by the year March 2009 (RM or Ringgit Malaysia is the local
currency, 3.40 RM was approximately equal to 1 USD at the time of study). By the year 2009
outstanding credit card debts accounted for 1.35 percent of the total loans outstanding or 11.41
percent of the total consumer credit (Bank Negara Malaysia, 2009). On a more serious note,
6.43 percent of the outstanding debts had to be converted to non-performing loans. An alarming
increase in the number of credit card holders seeking bankruptcy proceedings over the years
was also reported.
Shopaholic is one of the causes of bankruptcy among young people because of credit
card. On average, 41 are declared bankrupt every day, mostly due to credit card debts, while
every weekend, about five million peoples throng the 300-odd shopping complexes in the
country. These habits are among the shocking revelations on why Malaysian consumers cannot
cope with the rising cost of living. Federation of Malaysian Consumers Associations (FOMCA)
discovered that many of those declared bankrupt due to credit card debts were below 40 years
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Another cause of bankruptcy is poor financial management skills. Article from New
Straits Times states that 10 million of credit cards had been issued but only 30 per cent of card
holders is able to meet the monthly repayments. From the article, Chief executive officer of
FOMCA Datuk Paul Selvaraj said it is because of the convenience of credit cards that people
seem to prefer using them rather than cash. He also said that credit card holders do not feel the
immediate pinch of emptying their wallets when they make a purchase. It was reported that
those who used credit cards were more inclined to spend 17 per cent more compared with
those who used cash.
Besides that failing to repay credit card debts is also the cause of bankruptcy. This is
because credit card interest rate for outstanding balance is very high. Banks require consumers
to pay only the minimum which is 5% or RM50 (whichever higher) of total outstanding balance
(debt). If they only make minimum payment, it takes about 2 years to clear all the outstanding
balance providing that there is no new spending. On top of high interest rate, consumers are
also subjected to finance charges if they do not make full payments every month. This means, if
they make partial payment, minimum payment or do not make payment on or before the
payment due date, finance charges will be imposed from the day the transaction is posted to the
card account.

The relationship between psychographic variables, attitude development and credit card usage
by cardholders in Malaysia.

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A total of 87,583 individuals were declared bankrupt up to October this year, with 4,651
or 5.1% of them due to unpaid credit card debts. In light of this, the government will be
discussing with Bank Negara on finding a solution to the problem of high interest rates imposed
on credit card users, resulting in many being unable to settle their outstanding balance. Deputy
Minister in the Prime Minister's Department Datuk Liew Vui Keong said a solution was
necessary as the number of credit card users declared bankrupt was worrying with the majority
of them being young people (The Sun Daily, 15 December 2010).
One way to overcome credit card debt is consumers have to have full payments prior to
due date. They will enjoy interest-free period for retail transactions for 20 days on retail
transactions. Cash advance, balance transfer and installment payment plan programs are
excluded from interest-free period. Consumers also subjected to late payment charges
minimum of RM5 or 1% of total outstanding balance, whichever is higher, up to RM50 if they fail
to make payments before due date. If you have problem to settle your credit card debt, the best
solutions is to cut the card and stop using it.
Second way to overcome credit card debt is pay more than the minimum payment.
Always pay more than the minimum amount that you owe. If you can afford to do it, double or
triple the minimum payment. This will help you get rid of credit card debt more quickly. If you
have multiple credit cards, you might want to concentrate the bulk of the money you have
available to paying one off at a time. The credit card you should focus on first is the one with the
highest annual percentage rate. Pay this card off and then move on to the next highest one and
so forth. This not only gets rid of the worst credit card debt (i.e. the one with the highest interest

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rate), but it gives you a sense of accomplishment and peace of mind, knowing that you have
one less payment to worry about.
Third way to overcome credit card debt is treat a credit card like a debit card. The
biggest fallacy of credit cards is that they are 'additional money' to be spent each month. The
typical household sees the monthly credit card bill as just another bill to spend money paying
off. Worse, many people see 'responsible' credit card use as paying the minimum or slightly
more each month. Using a checkbook to balance your finances or free financial software such
as Mint.com or paid software such as Quicken can help you balance finances and ensure there
will be enough money each month to pay off the credit card bills. Every time you make a
purchase with a credit card, treat it like a debit card and deduct that money spent out of
checking or savings accounts. Software can do that automatically when linked to the accounts,
but a checkbook or simple pen and paper works the same way.
Next, set alerts to avoid missed or late payments. A missed or late credit card payment
can put even the most responsible credit card user over the edge and into debt. Interest rates
get raised and high fees will tack on finance charges to the bill. Set up free e-mail or text
message alerts from your credit card issuer's online account management site. If your credit
card issuer does not offer online account access, consider finding a new credit card company.
Many late fees and missed payments are due to using regular postal mail to keep up with bills
and make payments. Online payments are time stamped and come with an e-mail record of
statements and payments.
Another way to overcome credit card debt is do not spend money that we do not have.
This tried and true financial tip holds true for credit cards as well. Credit cards can be an
excellent financial tool to establish and build credit. They can also allow responsible users to
earn rewards such as cash back or points. Credit cards also act as interest free loans in a pinch

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with grace periods ranging from 20-30 days for users who can pay the balance off when the bill
comes due. Spending on a credit card should adjust according to one's financial situation.
Responsible credit card use starts with spending less than one has in their bank account month
to month.
Besides that you must try not to rack up your credit card bill. If you can avoid it, do not
use your credit card at all, as this will just put you deeper into debt. Try to pay cash for what you
need and eliminate the things that you want (even if only temporarily). The horrible thing about
credit card debt is that it is so easy for your debt to increase.
Write down a list of expenses is also a way to overcome credit debt. It is very beneficial
to know exactly where your money is going each month. Money seems to disappear before you
even get your hands on it. Writing down a list of where your money goes will get you thinking
about certain areas where you can save money. You can change your money habits by taking
the time to understand where it is going. When you look at your list (and you should include
what you are paying in credit card debt), you will probably be motivated to do what you can to
try to hold on to more of your money.
Lastly, pay down your credit card debt before you put money in a savings account. Your
credit card interest rate is exponentially higher than what you gain from a savings account at a
bank. Get rid of the credit card debt first, otherwise it will keep growing.

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In conclusion, those who want to avoid bankruptcy do their best to avoid credit card debt
to begin with. Bankruptcy can damage your credit score and cause other financial problems. On
top of that, the financial strain can begin to take its toll on your relationships.
Avoiding bankruptcy requires careful financial planning. We should create a budget and
track our spending. Live within our means so that we are not acquiring debt. Each month, pay
off our credit cards bill. We can use credit cards as part of our financial spending plan but we
need to be careful to avoid carrying a balance. Besides that, we must set aside money for
emergencies. That way, if unexpected expenses come up, we won't be as devastating. Being
debt free and having some savings built up and can go a long way toward helping us to stay
away from bankruptcy and providing us with some of the cash flow we need. With careful
financial planning, credit cards can be a helpful tool, rather than a path to bankruptcy. Do not let
something so useful become our downfall.
The problem with credit card debt is that it is very easy to get into but hard to get out.
(Some people associate it with a bad marriage, and it is really similar to it). To get into a credit
card debt is even easier than any other debt, because the plastic is just there in out wallet all the
time, as an easy solution, and we tend to use it as a "quick fix. Credit card debt reduction is
although a different story, to get out of credit card debt you needs discipline and planning to
reduce your outgoings and change your attitude towards your spending.
Getting to a stage when you realize that you must eliminate your credit card debt before
it gets out of control is kind of scary experience. When you realize that you need to find a
solution because there is no other way out, and you cannot carry on piling up interest on your
debt. You can start reduce credit card debt with preventing it from increasing and paying off the
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capital or getting a lower interest credit scheme, therefore reducing your total credit card debt
(credit plus monthly interest).
Other than following the step by step instructions of your credit card debt consolidation
plan, there are more methods to eliminate credit card debt. You can always seek assistance
either at your own credit card company or an independent credit card debt specialist. Your credit
card company wants their money back, so most of the times they are ready to compromise, give
you a lower APR or freeze the interest if you agree a credit card debt consolidation plan. You
must remember if you are not confident enough to negotiate a deal with your credit card
company, there are many companies who are willing to support you and also offer free credit
card debt consolidation consultation.

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1. Vickie L. Bajtelsmit with Linda Rastelli, (2008), Personal Finance, Wiley
2. Sarah Young Fisher and Susan Shelly, (2009), Personal Finance in Your 20s
&30s, Alpha Books.
3. Curtis E. Arnold, (2008), How You Can Profit From Credit Cards, FT Press.

1. A study of financial awareness among youths, Joyce K.H. Nga, Lisa H.L.
Yong and Rathakrishnan D. Sellappan.
2. Malaysian consumers credit card usage behavior, Zafar U. Ahmed, Ishak
Ismail, M. Sadiq Sohail, Ibrahim Tabsh and Hasbalaila Alias.
3. The influence of image consciousness, materialism and compulsive
spending on credit card usage intentions among youthJoyce, K.H. Nga, Lisa
H.L. Yong and Rathakrishnan Sellappan.

1. http://www.nst.com.my/top-news/easy-cash-turns-many-into-bankrupts-1.5518
2. http://thestar.com.my/news/story.asp?
3. http://voices.yahoo.com/credit-card-debt-one-cause-bankruptcy-7101354.html?

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14 November 2011| last updated at 12:25PM

Easy cash turns many into bankrupts

Uncontrolled spending and quick access to credit cards result in
more card holders facing financial distress, write Rozanna Latiff
and Roy See Wei Zhi
Malaysian youth are becoming increasingly reckless with spending, thanks in no small measure to the
convenience offered by credit cards. An average of 41 Malaysians are declared bankrupt daily, with the
majority failing to repay their car purchase loans.
These figures were gathered and tabulated by the Federation of Malaysian Consumers Associations
(Fomca) as part of its "Financial Awareness Month" programme. Fomca chief executive officer Datuk Paul
Selvaraj said RM560.1 billion in debts were not collected by banks as of August last year. He said car
loans and credit card debts were among the top two reasons why the country's youth seek financial
counselling from the Credit Counselling and Management Agency (AKPK).
According to AKPK's statistics, about 60 per cent of the 9,000 individuals who sought help were under
40. "A significant 15 per cent were youth in their 20s." He said there were many reasons why the public
were racking up increasingly high debts. "Among them are poor financial management skills."
He said 10 million credit cards had been issued, with only 30 per cent of card holders able to meet the
monthly repayments. Card holders owed more than RM24 billion, he added. "Perhaps, it is because of
the convenience of credit cards that people seem to prefer using them rather than cash. Also, credit card
holders do not feel the immediate pinch of emptying their wallets when they make a purchase."
It was reported that those who used credit cards were more inclined to spend 17 per cent more compared
with those who used cash. Selvaraj said there should be control mechanisms in the marketing of credit
cards. "Regulators need to make sure that marketing campaigns do not get out of hand.
"Banks must issue them only to customers who have the capacity to service their bills."
He said "on the spot credit card approval" deals must be offered only to those who were truly entitled.
"Banks need to make sure they let the public know of the responsibilities in using credit cards. "The
contract terms need to be transparent.
He said within just five years from 2005, some 4,400 individuals had been declared bankrupt after failing
to repay their credit card debts. He said at present, there were 3.2 million credit card holders with 60 per
cent of them having an annual income of less than RM36000.
Selvaraj also said debit cards were not as popular as credit cards. Last year, the average annual

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transaction of a single credit card was at RM9338, while only RM141 was spent using debit card. "Debit
cards are better as consumers are spending their own money."

Credit card issuers representatives are going all out to promote their cards at shopping malls and
office buildings. Members of the public who sign up are usually enticed by free gifts and exclusive
promotions. - NIK HARIFF HASSAN

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