alexa
Reach Us +44-1522-440391
A Study on Consumer Debt Stress Caused by Credit Cards
E-ISSN: 2223-5833

Arabian Journal of Business and Management Review
Open Access

OMICS International organises 3000+ Global Conferenceseries Events every year across USA, Europe & Asia with support from 1000 more scientific Societies and Publishes 700+ Open Access Journals which contains over 50000 eminent personalities, reputed scientists as editorial board members.

Open Access Journals gaining more Readers and Citations
700 Journals and 15,000,000 Readers Each Journal is getting 25,000+ Readers

This Readership is 10 times more when compared to other Subscription Journals (Source: Google Analytics)
All submissions of the EM system will be redirected to Online Manuscript Submission System. Authors are requested to submit articles directly to Online Manuscript Submission System of respective journal.
  • Research Article   
  • Arab J Bus Manage Rev 2017, Vol 8(1): 336

A Study on Consumer Debt Stress Caused by Credit Cards

Antony Jaishu*
Department of Finance and Accounting, City University College of Ajman, UAE
*Corresponding Author: Antony Jaishu, Department of Finance and Accounting, City University College of Ajman, UAE, Tel: 0551429932, Email: [email protected]

Received Date: Jan 22, 2018 / Accepted Date: Mar 01, 2018 / Published Date: Mar 08, 2018

Abstract

In recent years, there has been a dramatic growth in credit card usage among the people. This increase in the number of people holding credit cards and incurring credit card debt has generated concern that these people are overextended and unaware of the long-term consequences associated with severe indebtedness. Credit card unhealthy practices become been a world-wide challenge in the global business environment. The effect of default hits not only the victim, but also the banks, credit card companies, merchants and even the economies.

Keywords: Critical evaluation; Sustainable development; Economic; Social values

Introduction

If used responsibly, credit cards can provide a number of advantages to the users. Credit cards can be a convenient means of payment, a useful tool for learning financial responsibility, a resource in case of emergencies, a means to establishing a good credit history and a way to gain greater access to credit in the future. If credit cards are mismanaged or misused, however, the disadvantages can result in severe financial consequences.

The convenience of credit may tempt the users to live beyond their means. Excessive credit card debt and late payments can damage user’s credit ratings and make it more difficult for them to obtain credit down the road. In addition, users who are financially inexperienced may not understand the cumulative effect that interest rates can have on the amount of debt owed. Inexperience with credit and a lack of personal financial knowledge are likely to place some users at greater financial risk for having large, and perhaps unmanageable, debts burdens and eventually pull them in to financial stress.

Credit card and financial stress

India's ambassador in the United Arab Emirates (UAE) said, around 100 Indians are committing suicide every year since 2011, mainly because of financial problems. Financial stress can negatively even sevjghuik, merely impact things outside of the wallet: your health, your job and your relationships," says David Alecock, a vice president at In Charge Institute.

Credit cards can be convenient but the resulting debt could lead to financial stress. Credit card debt can lead to financial stress of two kinds: In emotional terms, credit card debt can create friction between you and your spouse, and in dollar terms, credit card debt can strain your financial ability. While credit card debt in and of itself is not necessarily a financial stressor, the negative effects of credit card debt are widespread and tend to grow as time goes on.

Previous literature has focused on variables such as demographics [1-5] and attitude [2,6]. With reference to Ming [5], the findings in their studies indicated that age, income, and marital status have significant correlation with credit card holders’ spending behavior. Geetha et al. [1] extended the literature by examining whether certain demographic variables have an effect on the financial wellbeing among young workers by observing the purchasing behavior in terms of asset ownership. The study of Ahmed et al. [6] found that credit cards across Malaysia might lead to compulsive shopping behavior causing heavy debt. Less emphasis has been given on the risk factor related to credit card attitude. In view of this elaboration, the first literature gap is identified which is to provide empirical evidence proving the relationship between credit card behaviors and stress to the users.

Objectives of the study

One of the most nefarious things about credit card debt is that it is not static even a small debt can take years to pay off if you only make minimum payments. When your debt grows even if you do not put any additional charges on your credit cards, it can create stress. If your debt takes years to pay off, that causes stress, too. Even the act of whittling your credit card debt by making substantial payments can create stress in the form of stretching your finances to the limit.

Credit card many times leads to relationship Strain. Credit card debt may be the leading cause of divorce. Couples often disagree on how much money they should be save and how much they should spend and rising credit card debt can aggravate that discussion. Further stress can arise if only one spouse runs up a large credit card debt or brings a lot of debt to a new marriage. While in certain states debt accumulated before marriage is the responsibility of the individual spouses, in reality, any money used to pay back debt is money that the household as a whole cannot use.

On the basis of the above theoretical perspective, the following research objectives have been developed for this study:

1. To analyze the role of credit cards in creating financial stress.

2. To identify the reasons behind problems and difficulties experienced by the credit card users regarding the credit card debt management.

3. To offer suggestions on the basis of the findings and conclusions of the study, so that deficiencies and shortcomings can be rectified.

Hypothesis

The following hypotheses are maintained for the purpose of the study. Hypotheses 1: Credit card debts never cause stress.

a. There is no relationship exists between the age of the credit card users and their perception towards stress caused by credit card debt.

b. There is no relationship exists between the sex of the credit card users and their perception towards stress caused by credit card debt.

c. There is no relationship exists between the income of the credit card users and their perception towards stress caused by credit card debt.

Methodology

Data collection

Data has been collected from both primary and secondary sources. Primary data has been collected from the respondents through a field survey. The researchers adopted a face-to-face distribution of questionnaire to the respondents of this study in scrutiny of obtaining higher response rate.

The data for this study were collected using survey questionnaires. All questionnaires were accompanied with a covering letter stating the purpose of this study. The covering letter also guaranteed anonymity of respondents. Right before collecting data from the final respondents, the instrument was reviewed by an expert in the area to provide justification for the content validity. Using a convenient sampling methodology, the researchers gathered 250 usable replies for this study. Data has been collected from both primary and secondary sources. Primary data has been collected from the respondents through a field survey. The secondary data for the study was collected from the published journals, magazines and other periodicals, books published research works etc. Internet services were also used to collect the latest information’s through various websites.

Sampling design

The sampling frame of this study comprises credit card customers of major local banks in UAE. Convenient sampling technique has been adopted for this study. According to the central bank of UAE 23 local banks are functioning in UAE. Out of these 23 local banks 5 banks are selected randomly for this study. The data for this study were collected using survey questionnaires. Primary data has been collected from 250 respondent’s i.e., 50 respondents from each bank with the help of structured questionnaire. While selecting a respondent due importance was given to various factors such as age, sex, and income etc.

All questionnaires were accompanied with a covering letter stating the purpose of this study. The covering letter also guaranteed anonymity of respondents. Right before collecting data from the final respondents, the instrument was reviewed by an expert in the area to provide justification for the content validity. Using a convenient sampling methodology, the researcher gathered 250 usable replies for this study.

Techniques for data analysis

In this study mainly we use the chi square test to test the hypothesis that attributes are associated or not. and the Proportional test to test Whether the proportion (ratio of number of responded in favor to total number of respondent) is greater than 0 p (50% in our case) or not we use the statistics where x is the number respondent in favor and n is the total number and q0=1-p.

Findings

The demographic profile of the sample respondents are given below (Tables 1 and 2).

S. No Variables Frequency Percentage
1 Age    
Below 25 7 2.8
26-35 24 9.6
36-45 94 37.6
Above 45   125 50
Total 250 100
2 Sex    
Male 216 86.8
Female 34 13.2
Total 250 100
3 Income    
Below 10,000 187 74.8
10,000 — 20,000 43 17.2
More than 20,000   20 8
Total 250 100

Table 1: Respondent’s profile.

Stress level Frequency Percentage
Great deal of stress 105 42
Some stress 137 54.8
No stress at all 8 3.2
Total 250 100

Table 2: Perception of the credit card users’ towards stress caused by total credit card debt.

Table 2 presents the perception of the credit card users’ towards stress caused by credit card debt. Out of 250 respondents, 42 percent have the opinion that they have a great deal of stress caused by credit card debt. 54.8 percent of the respondents have the opinion that they have experienced some stress because of credit card debt and 3.2 percent of the total respondents never experienced stress due to credit cards debt.

In this context the following hypothesis is constructed and put to test, such that H1, The credit card debts never cause stress. To verify this we conducted the proportional test which gives Calculated value (Z)=2.2768 and is significant at 5% level.

Since calculated value is greater than tabled value we reject H1. Hence we can conclude that the credit card debts cause great level of stress.

For the purpose of this study credit card users are separately studied on the basis of their age, sex and income.

Relationship between ages of the credit card users and their perspectives of the stress caused by the credit card debt.

In order to prove relationship exists between the age of the credit card users and their perspectives of the stress level caused by the credit card debt, the following hypothesis is constructed and put to test, such that H0, There is no relationship exists between the age of the credit card users and their perception towards stress caused by credit card debt.

Chi-square test for independence is applied to test whether H0, is true or not (Tables 3 and 3a).

  Age
Below 25 26-35 36-45 45 and above Total
Relation between age of the credit card users and their perception towards stress caused by credit card debt Great deal of stress Count 1 6 44 54 105
% within Age 14.30% 25.00% 46.80% 43.20% 42.00%
Some stress Count 6 18 48 65 137
% within Age 85.70% 75.00% 51.10% 52.00% 54.80%
No stress at all Count     2 6 8
% within Age     2.10% 4.80% 3.20%
Total Count 7 24 94 125 250
% within Age 100.00% 100.00% 100.00% 100.00% 100.00%

Table 3: Relationship between ages of the credit card users and their perspectives of the stress caused by the credit card debt.

Chi-Square Tests
  Value df Tabled value Sig
Pearson Chi-Square 7.329 2 5.991 0.026

Significant

Table 3a: Chi-square test to prove the relation between age of the credit card users and their perception regarding the stress cause by their credit card debt.

The result of the Chi-square test to prove the relation between age of the credit card users and their perception regarding the stress cause by their credit card debt is as follows.

The calculated value of χ2 is=7.329

Tabled value=5.991.

Since the calculated value is greater than table value, the Hypothesis H0 is rejected. Hence it is proved that there is a close association between age of the credit card users and their perception regarding the level of stress cause by their credit card debt.

Relationship between sex of the credit card users and their perspectives of the stress caused by the credit card debt.

In order to prove relationship exists between the sex of the credit card users and their perspectives of the stress caused by the credit card debt, the following hypothesis is constructed and put to test, such that H0, There is no relationship exists between the sex of the credit card users and their perception towards stress caused by credit card debt. Chi-square test for independence is applied to test whether H0, is true or not (Tables 4 and 4a).

  Sex
Male Female Total
Relation between sex of the credit card users andtheir perception towards stress caused by credit card debt Great deal of stress Count 90 15 105
% within sex 41.70% 44.10% 42.00%
Some stress Count 118 19 137
% within sex 54.60% 55.90% 54.80%
No stress at all Count 8   8
% within sex 3.70%   3.20%
Total Count 216 34 250
% within sex 100.00% 100.00% 100.00%

Table 4: Relation between sex of the credit card users and their perspectives of the stress caused by the credit card debt.

Chi-Square Tests
  Value df Tabled value Sig
Pearson Chi-Square 0.019 1 3.841 0.891
Not Significant

Table 4a: Chi-square test to prove the relation between sex of the credit card users and their perception regarding the level of stress cause by their credit card debt.

The result of the Chi-square test to prove the relation between sex of the credit card users and their perception regarding the level of stress cause by their credit card debt is as follows.

The calculated value of χ2 is=0.019

Tabled value=3.841.

Since the calculated value is less than table value, the Hypothesis H0 is accepted. Hence it is proved that there is no close association between sex of the credit card users and their perception regarding the stress cause by credit card debt.

Relationship between income of the credit card users and their perspectives of the stress caused by the credit card debt.

In order to prove relationship exists between the income of the credit card users and their perspectives of the stress level caused by the credit card debt, the following hypothesis is constructed and put to test, such that H0, There is no relationship exists between the income of the credit card users and their perception towards stress caused by credit card debt. Chi-square test for independence is applied to test whether H0, is true or not (Tables 5 and 5a).

  Income
More than 20,000 10000 to 20,000 Below 10,000 Total
Relation between income of the credit card users and their perception towards stress caused by credit card debt Great deal of stress Count 6 12 87 105
% within income 30.00% 27.90% 46.50% 42.00%
Some stress Count 14 30 93 137
% within income 70.00% 69.80% 49.70% 54.80%
No stress at all Count   1 7 8
% within income   2.30% 3.70% 3.20%
Total Count 20 43 187 250
% within income 100.00% 100.00% 100.00% 100.00%

Table 5: Relation between income of the credit card users and their perspectives of the stress caused by the credit card debt.

Chi-Square Tests
  Value df Tabled value Sig
Pearson Chi-Square 7.693 2 5.991 0.021

Significant

Table 5a: Chi-square test to prove the relation between the income of credit card users and their perspectives of the stress level caused by the credit card debt.

The result of the Chi-square test to prove the relation between the income of credit card users and their perspectives of the stress level caused by the credit card debt, the following hypothesis is constructed and put to test, such that H0, There is no relationship exists between the income of the credit card users and their perspectives of the stress caused by the credit card debt.

Chi-square test for independence is applied to test whether H0, is true or not.

The calculated value of χ2 is=7.693

Tabled value=5.991.

Since the calculated value is greater than table value, the Hypothesis H0 is rejected. Hence it is proved that there is a close association between income of the credit card users and their perception regarding the level of stress cause by their credit card debt.

In order to find out the major reasons that lead to credit card debt caused stress, further analysis have been conducted among the credit card users those who have a great deal of stress caused by credit card debt (Table 6).

  Number of credit cards
  1 2 3 4 More than 4 Total
Credit card users and number of credit cards they hold Count 7 14 43 15 26 105
% 6.70% 13.30% 41% 14.20% 24.80% 100%

Table 6: Credit card users and number of credit cards they hold.

The above analysis reveals the fact that out of a total of 105 credit card users those who have a great deal of stress caused by credit card debt, 41 percent have 3 credit cards and 24 percent have more than 4 credit cards (Table 7).

  Mode of their payment
  Those who are always paying full bill amount Those who are always paying only minimum bill amount Other mode of payment Total
Credit card users and mode of their payment Count 17 62 26 105
% 16.20% 59% 24.80% 100%

Table 7: Credit card users and mode of their payment.

An analysis of respondents, who have a great deal of stress caused by credit card debt, 59 percent of the card holders always paying only minimum bill amount and only 16.2 percent card holders pay full bill amount (Table 8).

  Sharing credit card with others
  Always Sometimes Never Total
Credit card users who share their credit card with others Count 57 32 16 105
% 54.30% 30.50% 15.20% 100%

Table 8: Credit card users who share their credit card with others.

Table 8 reveals the fact that 54.3 percent of the respondents always share their credit card with others. Only 15.2 percent of respondents use their card by themselves (Table 9).

  Taking out a cash advance
  Always Sometimes Never Total
Credit card users who take cash advance Count 28 61 16 105
% 26.70% 58.10% 15.20% 100%

Table 9: Credit card users who take cash advance.

The above analysis reveals the fact that out of a total of 105 credit card users those who have a great deal of stress caused by credit card debt, 58.1 percent take cash advance sometimes and 26.7 percent always takes cash advance (Table 10).

  Checking the monthly statement
  Always Sometimes Never Total
Credit card users who check their monthly statement Count 12 21 72 105
% 11.40% 20% 68.60% 100%

Table 10: Credit card users who check their monthly statement.

The above analysis reveals the fact that out of a total of 105 credit card users 68.6 percent never check their monthly statement. Only 11.4 percent of the respondents check their monthly statements.

Final findings

1. Majority of the credit card holders have the opinion that credit card debts cause stress.

2. There is a close association between age of the credit card users and their perception regarding the level of stress cause by their credit card debt.

3. Stress caused by credit card debt is more in credit card users above 35 years of age.

4. There is no close association between sex of the credit card users and their perception regarding the stress cause by credit card debt. Both male and female credit card users experience stress due to credit card debts.

5. There is a close association between income of the credit card users and their perception regarding the stress cause by credit card debt.

6. Credit card users who belong to the income level of less than 10,000 have more stress caused by credit card debt.

7. The above analysis reveals the fact that majority of the credit card users have 3 or more credit cards.

8. An analysis of respondents, who have a great deal of stress caused by credit card debt reveals the fact that majority are always paying only minimum bill amount. Only few of them are paying the full amount of their bill.

9. Study reveals the fact that majority of the credit card holders always share their credit cards with others.

10. Majority of the credit card holders take cash advance on their card.

11. The study reveals the fact that majority of the credit card users are ignoring their monthly statements. They never verify their monthly statement. They are paying their bill amount without checking the statement.

Suggestions

Based on the findings following suggestions seem feasible for managing the credit card debt.

1. It is always recommendable to reduce the number of credit cards. Having too many credit cards will have a negative impact on credit score of the card holder and his ability to borrow. If the numbers of cards are less it will be easy to track and manage. The more credit cards you have the better chance you have of getting deeper in debt.

2. Not paying off the credit card balance full is a big mistake, this should be avoided. Carry debt to build credit is actually a myth.

3. New credit card users should try to pay off their balances in full, but also keep balances below 30 percent of their credit limit. Because credit utilization -- or how much of your total credit you actually use -- typically makes up a portion of your credit score. Carrying a high balance from month to month can be devastating to credit score.

4. Sharing the credit cards with others may lead to over spending, misuse of the card and related disputes. It may also disturb the personal budget of the card holder.

5. Cash advance is an attractive option to get quick cash, but interest rates on cash advances can be double your standard interest rate in some cases. Not only have that cash advances also typically had additional fees. Because of these reasons it is better to avoid cash advances at all cost.

6. Payment history is an extremely influential factor in credit score, and just one late payment could damage credit score. Credit card holders can avoid late payments by checking their credit card statements regularly.

7. Paying minimum amount is a blunder. The best strategy is to pay off the balance monthly.

8. Checking the statement will help the card holders not only to pay their bill promptly, but also allow them to make sure that the charges on it are correct or not. Waiting too long to dispute a charge is essentially accepting it.

9. In these days of ID theft, it is always better to check your bills regularly and on time.

10. Credit card holders should avoid late payments, because a late payment leads to late payment charges, which could be higher than minimum payments. It may damage the credit score and make it harder to get better terms for future loans and accounts.

11. In order to avoid late payment it is recommendable to set up an automatic payment system via bank. But when we set up an automatic payment system make sure time Zone time and date.

Conclusion

Credit card is a good system but if you are not managing your credit card in a proper way that will lead to financial stress and related issues. Revolving credit makes it easy to spend beyond your means. But it's important to remember that a credit card is a form of borrowing. You buy now and pay later - and there are risks. It’s all depends up on how do you manage your credit card. If we manage our credit card in a proper way we can avoid financial stress due to credit card debts.

References

Citation: Antony J (2018) A Study on Consumer Debt Stress Caused by Credit Cards. Arabian J Bus Manag Review 8: 336.

Copyright: © 2018 Antony J. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Select your language of interest to view the total content in your interested language

Post Your Comment Citation
Share This Article
Relevant Topics
Article Usage
  • Total views: 2366
  • [From(publication date): 0-2018 - Aug 18, 2019]
  • Breakdown by view type
  • HTML page views: 2226
  • PDF downloads: 140
Top