Introduction to Credit Card Debt

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Debt has always existed. Collectors with no sympathy toward the debtor were feared. Those who forgave debts were praised. In some societies those unable to repay their debts were enslaved or stoned to death. Individuals have always borrowed from others when they did not have the needed funds. Those with money seem to have the most power and often that power is used to threaten or control those with less money.

The current mortgage crisis will hopefully help us take a closer look at our spending habits, especially the use of credit cards. The first Diners Club card was issued in 1950 to businessmen for the purpose of charging meals. It was made of cardboard. The first plastic credit card came out in 1955. Today, there are approximately 20,000 different credit cards available in the U.S.

The first credit card was intended for business use and was only accepted in a few restaurants. Initially personal credit cards were intended for use during emergencies. With continued growth they were accepted in more places for more reasons. Companies unrelated to banking marketed their own cards with their logos. Credit card companies gave points and rewards to its users. Credit requirements were relaxed and anyone could get a credit card, even those with bad credit.

Gradually the average American shifted from an occasional credit card user to a frequent user. They no longer used credit for emergencies or travel but to purchase things they did not have the money to pay cash for, to pay for items like clothes and entertainment, purchase gas and groceries, and sometimes to pay their monthly bills. Years ago if you wanted to go somewhere or purchase something, you withdrew money from savings. If you didn’t have money in savings you did without. Today you get advances on your credit card. When you don’t have the money needed to pay a bill you pay with a credit card.

These figures were recently released by the Federal Reserve. There are approximately 1.2 billion credit cards in use in the U.S. 24% of all personal expenditures are made with credit cards. 40% of Americans spend more than they earn. The average credit card interest is 18.9%. The typical person pays about $1,200 per year in credit card interest. The credit card industry collected $43 billion in credit card fees in 2007. The average credit card debt is $9,205 – triple what it was in 1990 – for individuals having at least one card. 13% of Americans were late paying their credit card bills in 2007 and 11% of delinquent charges were turned over to collection agencies.

The above numbers are alarming. Financial experts suggest that 2008 could be worse. The credit card companies are the only ones to benefit. To successfully manage your money you must learn to manage your credit card debt. The best way to do this is to be aware of your balances, limit the amount you put on credit cards, and pay them off as quickly as possible. Check your statements each month for the interest rate. If your payment is late or you don’t abide by certain policies they can increase the amount of interest charged. Sometimes it is beneficial to do a balance transfer to a lower interest rate card but make sure to check the terms and the transfer fees.

Some types of credit cards have higher interest rates than others. Department store credit cards typically have higher rates than bank credit cards. If you have to use credit at least use the card with the lowest interest rate. Avoid cards with high annual fees. If you can’t make a payment or the rate is too high, call the company to see what you can negotiate. Always check your statements and be alert for fraudulent charges. Before you make a purchase with your credit card, ask yourself if this is something you really need.

Buying is often psychological. Many times you buy things because you think it makes you feel better. Or you do it to go along with the crowd and keep up appearances with your friends. But once your credit card debt is out of control you no longer feel good about yourself. Once you learn to manage your finances, without the use of credit cards, life can be less stressful. Occasionally you might have to give up something but the peace of mind from having no credit card debt is priceless.

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