Credit cards these days have become popular replace for cash money among customers through out the world. Standing in a line watching someone shuffle through 10 different credit cards to pay their shopping bill in a mall has become a common scene. Of course only a very few consumers would have that many credit cards but people these days have at least one credit card with them – two or three at times. If wisely used, a credit card can provide convenience and allow you to make purchases with nearly a month to pay for them before finance charges kick in. But the larger picture shows that customers fail to take this advantage and end up with a balance in their credit cards which they have to pay back most of the times at a high interest. This balance that sits in your card when you shop for stuffs using it is called the credit card debt. If you own a credit card yourself, you might think you know all there is to know about the credit card debt. But here are top 10 facts about credit card debt that might surprise you.
10. Credit card history is older than you think
The first use of credit cards originated in the United States during the 1920s. Back then, individual companies like hotel chains and oil companies began issuing credit cards to customers for purchases made at their businesses. The post World War II period saw a much significant rise in this trend. In 1950, the Diner’s club started the first Universal Credit Card – one that could be used at a variety of stores and businesses. With this system, the credit-card company charged cardholders an annual fee and billed them on a monthly or yearly basis. Soon came the Bank Card System with BankAmericard in 1959, which now is popularly known as Visa. Other major bank cards followed, including MasterCard, formerly Master Charge.
9. The numbers in a credit card
We all have seen those numbers in the credit cards, but those numbers can tell what kind of credit card it is? Although different companies that give their own credit cards to the customers might have their own numbering systems in use, most credit card systems, especially the ones in the United States, use ANSI X4.13-1983. The first digit in the credit card signifies the system – it tells if the card is for travel or entertainment, or VISA or MasterCard. The other digits in the card represent information like type and currency, account number, card number within account and the check digit.
8. Credit card debt – where the numbers stand
When it comes to the average household credit card debt, the statistics for the United States stand pretty high at $15,252 per household. The credit card companies make much of their money from the interests and finances. In 2006 alone, credit card companies made a whopping 55 billion dollars from credit card fees and another 90 million dollars from finances. When it comes to debt, US tops the list with debt exceeding 10 trillion dollars, United Kingdom comes second at 8 Trillion dollars tailed by Germany at third with a debt of 4 Trillion dollars. At least one in 10 consumers has more than 10 credit cards in their wallets. 51 percent of the US population has at least two credit cards. That’s 305,000,000 plastic cards which would span 16,223 miles, 65% around the world.
7. Monthly minimum payment – the thin line
This is one simple trick that Credit Card Companies use to keep hold of customers. They set a minimum monthly payment that is impressively low, in fact so low that people end up paying just that and put off the rest. The minimum payment deal does help a lot, especially when you are struggling financially for a month, but at times, the rates become so tantalizing low that most customers end up paying the rest time and again. Paying only the minimum means your large balance will grow even more with interest charges, and it will be even harder to pay more than the minimum next month. For this reason, it’s wise to pay off as much of your balance as possible — preferably your entire balance every month.
6. Low introductory rate turns into a higher one
One of the most popular gimmicks most Credit Card companies use to attract more customers is low introductory rate offer. Under this plan, a customer will be hold on a credit balance for a few months with only a minimal amount of growth. However, just as the customer starts getting comfortable in the low interest rate, the company will switch your short lived stint with a much higher one. More often then not, the customer won’t even be properly informed of the increase in the credit rate that he will have to pay the very next month. That being said, some customers play the game of switching debt to a new card with a low introductory rate every few months — but this takes work and a good deal of juggling around with cards.
5. Debt consolidation, but counsel first
When you land into overwhelming credit card debt, one of the most popular solutions to sought these days is debt consolidation. Yes, there are a number of credit counsel agencies that offer different debt consolidation programs to get you get back on track with your debt. But they can also be unnecessary and even detrimental when done through a poorly run organization or for the wrong reasons. Would you actually want to consolidate when you are having trouble paying basic bills or you can have other better alternatives? Of course not. And this is why a prior counselling is essential to accesses your entire financial situation before deciding whether consolidation is an option or not.
4. Debt Consolidation Plans – All are basically the same
Different consolidating agencies will provide with you a list of possible solutions that can be implemented to get you out of your deficit in a definite period of time. But those financial institutions don’t give preferential services to any particular organization or person. So even though the agencies and employees may vary, all their plans will be structured the same way. Your counselor will do some maths and find how much exactly will it take to pay off your creditor all the debt within a period of 2 to 5 years. In all the plans that they will forward, they will take a certain amount of money from you, and as a third party, pay it off to your creditors. And obviously you will also be making payments to the consolidation agency as well – usually around 2.5% of your total debt, though the rates are negotiable at a number of agencies.
3. Owing is easy, paying is the harder part
If you partake in reckless buying of stuffs without any careful attention to how adversely it might affect your credit bills, you will inevitably sink into remarkable debt. The fact that credit card limit in the beginning is usually low makes over-charging tempting. As the debt balance piles up, the interest compounds too, giving a further rise to payments. So the best option is to repay your debt as often as possible rather than letting it pile up for a long term and end up paying a huge interest.
2. Fail to repay and there are consequences
No you won’t be put behind the bars for non payment of a massive credit card debt, since there is no such legal repercussions. That being said, you will face other obvious consequences for not paying your debt. The creditors can sue you, and if they win a judgement against you, possible ramifications can range from garnishing of your wages or seizure of non-exempt assets. So even though you would not end up in jail, you still would not want to have a huge backlog of massive credit card debt at your hands and face other dire consequences creditors will likely enforce upon you.
1. Be smart and you don’t have to owe
Yes, it is indeed possible to use credit cards frequently and at the same time staying out of any debt forever. But one must use the credit card as a payment tool, rather than as a revolving debt option. It is much smarter to only charge what you can pay off easily for when the bill arrives. And the best way to do this – Write all your credit activities in a checkbook register and update your balance regularly.
Credit cards are designed to pay for things without having to use actual cash money for those transactions. They become even more useful when it comes to doing online shopping. Since popular credit card companies like VISA and MasterCard are accepted world wide, you can use their credit cards as portal to shop anytime, anywhere. But as it is clear from above facts, you need to be careful as well. Go into a needless and endless shopping spree using your credit card, you will end up with a huge pile of balance that will need to be cleared at a high interest. Use it wisely and pay all your credit card debts in time without falling for traps like minimum payment and lower introductory rates, you will surely make the most out of it.
Pawan is a budding programmer who loves to write about anything he finds interesting. He is a huge fan of the Lord of the Rings trilogy, and loves reading spy novels in his leisure time.