Credit card debt

Credit card debt is an example of unsecured consumer debt, accessed through ISO 7810 plastic credit cards. Debt results when a client of a credit card company purchases an item or service through the card system. Debt accumulates when the consumer does not pay the company for the money he or she has spent. The results of not paying this debt on time are that the company will charge a late payment penalty (generally in the US from $10 to $40) and report the late payment to credit rating agencies.

Credit card debt statistics

• United States (April 2005) $735 billion [1]
• United Kingdom (July 2004) £55.1 billion [2]

Credit card debt is said to be increasing in the industrialized countries. The average U.S. college graduate begins his or her post-college days with more than $10,000 in credit card debt at present.

Bankruptcy concerns

Sometimes the late fees and high annual percentage rates (APRs) overcome consumers who frequently do not pay off their debt, and often the customer declares bankruptcy or uses the "Skip a Payment" option some companies, like Next Month Online, offer. If a customer files for bankruptcy, the credit card companies are required to forgive the debt.

Because forgiveness of debt reduces likelihood of profit and continued survival, the companies are generally willing to offer another deal to the consumers in danger of bankruptcy. This deal consists of reduced APRs, removal of past late fees and penalty charges, and reaging the accounts so that the credit agencies see them as late accounts.

Political aspects

Some credit card companies made lobbying efforts at the federal level to change American bankruptcy law [3]. Recently it was reported that Americans are paying off credit card debt more frequently, and this was attributed in part to the bankruptcy legislation supported by the companies [4].

See also

• Credit card
• Bankruptcy