Credit Card Debt

Credit card debt is the total unpaid balance on the credit line. There are several factors that contribute to accelerating credit card debt.

Penalties and interest - one major reason that debt accumulates is due to penalties and interest when the consumer fails to make payments on time. Penalties are charged when the bill is not paid by the due date. Hence it is advisable for the consumer to repay the credited amount immediately. These days, most credit card companies allow you to make several monthly payments online.

“Over- the - limit” fees are another reason debt accumulates. This excessive amount is charged to the account when the consumer exceeds their credit limit. “Over- the - limit” fees continue to accumulate until the balance is paid below the credit limit. Know thy credit limit!

“Universal Default” - When one of the consumers fails to repay the credited amount or late payment occurs, the credit card company increases the interest rates. These increased interest rates are applied to the consumer with a late payment as well as consumers that pay regularly and on time. This methodology is known as Universal Default. Thus late or non- payment of one particular consumer can hamper the debt amount of other consumers as well. Don’t be a bad apple and cause others to pay for your mistakes.

APR, or annual percentage rate also contributes to the amount of credit card debt. APR is the effective interest rate charged by the credit card company, and paid by the consumer. Annual percentage rates may be increased by the credit card companies. This increase interest can contribute to credit card debt.

To summarize, credit card debt is inclusive of late payment charges, over- the – limit charges, universal default and higher annual percentage rates. It's imperative that you find credit card with good terms. In most cases credit card applications can be completed online.

New regulations for credit cards

Federal regulators have signed into legislation new regulations for credit card companies. Some will take effect August 20 of 2009 while others won't go into effect until February 22 2010. The new regulations will:

Allow credit card holders at least 21 days to make a payment. Consumers often end up with late payments because of the short amount of time between receiving their bill and the payment due date.

Card issuers must give 45 days notice before raising your interest rate or any significant changes in the terms. 15 days is the current standard.
Stop Credit card companies from unfairly allocating payments to balance with different interest rates. For example, balance transfers often have have different interest rates than purchases. Many credit card companies first allocate your payment toward balances with lower interest rates causing the credit card holder to pay more in finance charges.
Stop creditors from raising interest rates on balances incurred in the past.
Stop creditors from charging over the limit fees on for an account that is on hold. In certain types of transactions, like deposits for motel rooms, the merchant authorizes the account for a higher amount than what's actually charged. Until that hold is released, the creditor treats it as you've already spent the money and could determine future purchases as over the limit. This also applies to overdraft fees on debit card accounts.
Eliminate double billing cycle finance charges. This is the most costly method of computing finances charges and can lead to consumers paying interest on balances that have already been paid.

Eliminate "deceptive offers of credit." When a bank offers you a credit card with a low rate, it would needs to tell you what you need to do to get that interest rate.

Card issuers will be required to provide new, clearer and timelier disclosures of account terms and costs before and after an account is opened

Statements now will include details warning consumers about high costs of making only the minimum payment.

Statements will have to show the monthly payment required to pay off the existing balance in 36 months. It will also show the total cost of payments and interest.

Minimum payments may go up. A higher percentage of the balance will be due each month, howeve however cards issuers cannot raise the minimum more than 100% (as an example they can't raise from, say, 5%, to 10%)

Make sure you review any statements or correspondence you receive from your credit card issuer. Since the law passed, many companies have been raising rates, increasing fees, reducing credit limits and dropping customers with large outstanding balances.

Some are also changing their balance transfer offers. One regulation that goes into effect in Feb 2010 states that card companies must apply any payment you make above the minimum to your highest-rate balance first - so people who have a 0% balance transfer and an 11.99% rate on new purchases will no longer be stuck paying off the 0% balance while interest on the balance at 11.99% continues to accrue.

They may also start charging fees for balance transfer offers that were once free. Choose carefully.

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