Debt Trap of Credit Cards: Factors and Implications

Running head: FINANCIAL PLANNING
Financial Planning
Name of the Student:
Name of the University:
Author’s Note:

1
FINANCIAL PLANNING
Part B
Introduction
In the current time period, with the advent of new and improved technologies and
digitalisation, there has been an observation that there has been a rise of new and improved
financial techniques with the help of which financial transactions in the current world are made
easier. The consumers as well as the sellers are able to buy and sell their products at ease with
the help of which standard of living as well financial transactions are made easier (Zimbardo,
Clements and Leite 2017). The advent of new financial tools are techniques are observed with
the use of debit and credit cards with the help of which the consumers can undertake transactions
without the use of cash and thereby reducing the burden of carrying cash. However, it is seen
that these uses lead to various issues and problems that hampers the lifestyle of the individuals
(Gan et al. 2016). This has led to the issue that purchasing products with the help of credit cards
costs us more than the amount that is paid by cash and therefore this has created a pertinent issue
in the current world. The essay would therefore look to address the issue and discover the factors
that have led to the creation of this phrase.

2
FINANCIAL PLANNING
Debt Trap of Credit Cards
In the current time period, there has been an observation that use of credit and debit cards
has increased and this has improved the lifestyle of the consumers. The use of cash has reduced
and therefore the consumers can undertake cashless transactions that reduce the time of making
payments and purchasing a product. However, purchasing products with the help of the credit
cards leads to the payment of extra money for the product that would costed less if paid with
cash.
In order to understand the process that is used in credit cards, it is essential to have
knowledge about credit cards. It is seen that credit cards are cards with the help of which one can
make purchases without paying any cash and the payment is made by the bank who has issued
the card (Awanis and Chi Cui 2014). The bank on behalf of the card holder makes the payment
and it is seen that the money is not taken from the bank account of the card holder. Therefore, it
becomes the obligation of the card holder to pay back the debt that is taken by the bank.
Grubb (2015) explained that credit cards have become an essential commodity for the
consumers at the current time period and it is seen that there has been a rise in the use of credit as
time is going by. The most important thing that needs to be taken into consideration is to
discover the benefit of the banks and the other financial institutions to make payments on behalf
of the consumers. Gill (2016) cited that the bank charges an interest over the card that has been
issued and the interest is fixed and even in cases when no transactions are made, the banks
deduct the minimum fee charge from the consumers.
It is seen that most of the consumers prefer to undertake transactions with the help of the
credit cards and accordingly they are ready to pay the interest for the use of the card. The interest