Credit Card Debt BasicsCredit card debt is a sample of uncovered debt of a consumer, available through ISO 7810 plastic credit cards.
A good or service purchased with the help of a credit card results in a credit card debt, which amasses and increases by means of interest and penalties (if not being paid according to the specified schedule). The latter are imposed by the company in case the consumer does not return them the money spent.
If the client does not pay his debt on time, later he will be obliged by the company to deposit a payment penalty (ranging from $10 to $40 in the US). Credit rating agencies will soon be informed about the delayed repayments on the credit card debt. The practice of being late on a payment may also be referred to as “default”. The client’s credit card debt is increased by the imposed late penalty as well.
Being late on a payment may also increase the interest rates that a given consumer pays to other creditors, even those he wasn’t late in paying to. This phenomenon is referred as “universal default”.
If the amount of client’s debt is higher than his/her credit limit, an over-the-limit fee is imposed. It can be equal to up to $39 and may be collected until the balance of the credit card debt is back into the limits specified by the creditor. The over-the-limit fee may also increase the amount of the debt owed by a given customer.
Contents of the article: 1 Credit card debt statistics
2 The danger of bankruptcy
3 Political approaches
Credit card debt statistics - USA – the net amount of customer credit card debts equals to $753 billion (April 2005)
- United Kingdom - the net amount of customer credit card debts equals to £55.1 billion (July 2004)
- Australia - the net amount of customer credit card debts equals to 34.2 billion AUD (2005)
Statistics show that the net amount credit card debt is increasing in industrialized countries these days. For instance, the average college graduate in the USA leaves college with more than $2,000 in credit card debt.
The danger of bankruptcy Those clients who do not pay their credit card debt run risks of being overcome by the late payment fees, over-the-limit fees, increased APRs (annual percentage rates), and “universal default”. In case a customer decides to file for bankruptcy, the debt may be forgiven by the credit card company fully or partially, lest either other creditors challenge such discharge of debt, or a bankruptcy judge protests against it despite the creditors’ decision.
The forgiveness of credit card debt decreases the chances of profit and survival for companies. So, as a rule, they are ready to negotiate with their debtors and make them another offer in order to prevent them from filing for bankruptcy. It includes the following perks: reduction of APRs, elimination of past late fees and penalties (even the unpaid ones). The accounts would also be “saved” so that the credit agencies don’t see them as late ones.
Political approaches In the USA lobbying efforts are made by some credit card companies attempting to tighten the country’s bankruptcy law. As a result, the process of canceling credit card debts got much harder. The fact that the Americans are paying off credit card debt much more frequently than before was attributed to the bankruptcy legislation currently supported by the companies.
Germany may be referred as a country with no tendency to personal bankruptcy until the beginning of 2000. The country makes bankruptcy a much more complicated process than the USA, and due to this fact it has lower levels of credit card debt. But still, the conditions for German debtors are much harder than the conditions for American ones.
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