Credit card debt
Credit card debt is an example of unsecured consumer debt. It results when a customer of a credit card company 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 and report the late payment to credit rating agencies.
Credit card debt statistics
- United States (April 2003) $735 billion [1]
- United Kingdom (July 2004) £55.1 billion [2]
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].
Credit cards originate in the 1920’s after a variety of merchant card scandals had subsided. They where first used specifically to sell gasoline with and then various car companies used them as a quick means of selling vehicles. In 1950 however the first merchant card was invented by Frank X McNamara in order to create a more unified card. Several years later the diners club produced the first original charge card which required the entire bill to be played with each bank statement. The next card that was introduced was the American express card in 1959. Bank of America created the bank amerced in 1958 which would eventually evolve into the Visa chargex system. In 1966 Master Card was founded and developed a similar system. Over the years there has been much controversy about credit card debt. Credit card companies have charged outrageous fines and have issued hidden taxes on young credit card holders. Much legislation has been passed at the urging of credit card companies to make it harder to declare bankruptcy. Many people have ended up living off of there credit cards in debt. Credit Card companies have always tried to make as few loopholes as possible so that they could rip people off.