Category: Bankruptcy laws

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Why Credit Card Debt Grows

Would it surprise you to learn that credit card companies don’t want you to pay your entire bill every month, that they make money-lots of it-when you don’t pay, or that credit card debt is one of the major reasons people file for bankruptcy?
Getting into credit card debt is much too easy. All you need to do is take a vacation, go on a shopping spree, dine out at expensive restaurants, any or all of those things that are so easy to do when you only need to pull out a piece of plastic to pay, even easier when you have lots of pieces of plastic to use.
And, since credit card companies don’t insist that you make more than a “minimum” payment, those costs can drag on for months, even years, mounting insistently as interest kicks in, and maybe a late payment or two adds not only a late payment fee but can boost the interest rate on that card and, possibly, on your other credit cards, as well. Without using a card one more time, your debt can keep growing.
How? Interest and fees mount up. Over time, those interest, late fee and over-limit penalties can surpass the original debt. That’s one way banks and credit companies make money. But they profit in other ways. You might compare, for instance, the interest these banks charge on your credit card debt with what they pay in interest on checking and savings accounts. The balance is in the banks’ favor, typically something like a whooping 14 percent for them to 2 percent or less for you.
How do you avoid the credit trap and its costs? The easy answer is to pay your entire bill, or as much as you can, on time. On time, in this case, means early, since there are enough documented cases where payments were not recorded until “late” and late fees and extra interest were added, escalating the total amount owed. Some advisors suggest either electronic transfers to pay a bill or, if using the mail, a return receipt to document when the payment was received.
There is a way to beat the system and still use credit cards. That is to get rid of your credit card debt, then figure out how much you can spend each month and don’t go above that figure. Don’t fall for the gimmicks and special offers that flood the mail, the zero percent, discounts, rebates and all the rest, and, above all, read all the fine print carefully. With careful planning, credit cards don’t need to cost anything, even an annual fee.

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Credit Cards: Debt Made Easy

Not many years ago, people didn’t buy when they couldn’t pay. Today, things are different. People do buy when they can’t pay. Instead of reaching for the wallet or checkbook, then making sure they have enough money to cover the cost, they take out a piece of plastic-usually one of many-sign a slip and walk away with the purchase, forgetting about the cost until the monthly bill arrives.
Then, if they can’t pay the entire bill, they pay only a bit, deferring the full cost, sometimes for months and years, adding interest and other fees along the way. As far too many people can testify, eventually interest and fees can add up to more than the cost of the original purchase. Multiply that by a pocket-full of cards and you have trouble.
Credit cards have become such an essential part of today’s life, though, that you almost can’t manage without one. Credit cards are required to rent cars, reserve hotel rooms, buy airline tickets, shop on line or by phone, even, in many areas, to open a bank account.
They are so familiar, and so widely used, that many people don’t stop at one or two, especially when bombarded with offers for cards with low interest rates, rebates, points toward purchases or airline miles. No source seems to keep an up-to-date count of just how many credit cards are in use or how many different cards people have, but one study by the credit reporting agency Experian showed that more than half of the population has two or more cards and some 14 percent have ten or more cards.
Another survey, by the National Foundation for Credit Counseling, documented the growth of credit card debt from an average household monthly balance of just under $3,000 in 1990 to $8,500 in 2003. At the time the credit limit for the 475 million cards then in circulation approached $2 trillion.
Buying on credit has a long history, but the use of actual cards began in the late 1930s when companies started accepting cards from other companies, at the time mainly for selling gasoline to automobile owners. Diners Club issued the first general purpose card in 1950, followed quickly by American Express and Carte Blanche. These early cards were, more aptly, “charge” cards than “credit” cards, for the entire amount was due with each statement.
Using “credit” to pay only part of the bill each month started in the late 1950s when the Bank of America launched the BankAmericard, forerunner of the Visa system. Next was MasterCard, established by a group of banks that issued credit. No longer tied to a local bank, credit cards gained quick popularity, especially with a mobile population that could now travel, and purchase, without taking credit and funds with them.
Since then, the numbers and types of cards have proliferated. Popular variations include Co-Brand and Affinity cards, many of which have a reward system-cash back, discounts, airline miles, points toward car rentals or hotel rooms, etc.-or the promise of a percentage being returned to the Affinity group, often a university. The combinations led to more card usage, and more easy debt.

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How are debts classified in bankruptcy?

Debts are divided into two categories: dischargeable and non-dischargeable. Dischargeable debts are those that the debtor is no longer personally liable to pay after the bankruptcy proceedings are concluded. Non-dischargeable debts are those that are not canceled because of the bankruptcy proceeding. This means that you are still responsible for paying, whether you declare or do not declare bankruptcy.

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