Many People Are in Financial Hardship due to Their Irresponsible Use of Credit Cards - IELTS Essay

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Model Essay 1

The alarming rise in financial distress caused by the misuse of credit cards has prompted calls for stricter issuance policies by banks. I assert that financial institutions should adopt rigorous assessments of an individual’s financial stability before issuing credit cards. This essay will explore the necessity of such measures and the potential impacts on consumer financial health and banking integrity.

Firstly, evaluating a person's ability to manage debt prior to issuing a credit card can significantly mitigate the risk of financial hardship. Credit cards, while offering convenience and benefits, often tempt individuals to spend beyond their means due to high credit limits and minimal immediate repercussions. For instance, a study by the Consumer Financial Protection Bureau highlighted that households with lower incomes tend to accumulate higher credit card debts relative to their earnings, leading to unsustainable financial situations. By ensuring that credit cards are only issued to those who can feasibly manage the repayments, banks would play a crucial role in preventing the deepening of debt cycles among vulnerable consumers.

Moreover, this prudent approach benefits not only consumers but also financial institutions by reducing the incidence of bad debts and maintaining credit quality. Banks that issue credit cards indiscriminately face higher default rates, which in turn affect their financial stability and reputation. A report from the Federal Reserve indicated that during the economic downturn, banks with stricter credit issuance policies experienced markedly lower levels of non-performing loans. This illustrates that thorough financial assessments prior to credit card issuance serve as a protective measure, safeguarding both the consumer’s financial health and the bank’s economic vitality.

In conclusion, the prudent issuance of credit cards, contingent upon a rigorous assessment of an individual’s repayment capability, is essential for fostering financial stability and integrity in banking practices. This approach not only assists individuals in managing their finances more effectively but also fortifies the financial ecosystem against potential crises precipitated by high levels of consumer debt.

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Model Essay 2

The prevalent financial difficulties many face due to reckless credit card use suggest that banks and financial institutions should only issue these cards when an individual's repayment capability is assured. I contend that while this approach has merits, it should be balanced with the need for financial autonomy and education.

Firstly, the potential benefits of stringent credit issuance cannot be overlooked. By implementing rigorous assessments of an applicant's financial stability, banks can mitigate the risk of non-repayment that often leads to severe economic consequences for both the consumer and the institution. For example, in countries like Canada, where credit evaluation is strict, bankruptcy rates are notably lower compared to regions with lenient credit policies. This correlation underscores the prudence of comprehensive financial checks, ensuring that only those who can feasibly manage additional debt are entrusted with it. These policies not only protect financial institutions but also help individuals avoid the deep debt that can lead to financial ruin.

However, the proposal to limit credit issuance strictly bases itself on the presumption that all financial mismanagement stems from consumer irresponsibility. This perspective neglects scenarios where individuals may require credit during unforeseen financial crises, such as medical emergencies or sudden unemployment. Thus, a blanket restriction could inadvertently deny crucial financial lifelines to those in temporary distress, potentially exacerbating their financial hardship. Moreover, such limitations could stifle economic mobility, particularly for low-income individuals who, with responsible usage, could leverage credit as a means to improve their financial standing and creditworthiness. Denying access to credit could therefore prevent these individuals from building a better financial future and contributing to economic growth.

In conclusion, while ensuring that credit card applicants are financially capable of managing their debts is a sound strategy, it should not be an absolute barrier to credit accessibility. The focus should instead shift towards enhancing financial literacy and providing robust safety nets for those in economic difficulty. Ensuring a balanced approach not only prevents financial crises resulting from unpaid debt but also preserves the economic agency of individuals across various socioeconomic statuses.

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