Mumbai: The Reserve Bank of India is (RBI) concerned over banks withdrawing outstanding liability insurance on credit cards with zero annual fees, and sanctioning credit limits out of sync with customers’ debt servicing abilities.
The banking regulator feels that the free credit card culture is leading to increasing instances of high indebtedness among credit card customers.
The RBI is drafting a comprehensive study on the credit card market and a best practices code for credit card issuers. It is also considering a proposal to ensure that the aggregate credit limits on all cards held by a customer do not exceed his or her ability to pay, banking sources said. Banks currently sanction high credit card limits to their customers without taking into account credit limits provided by competing card issuers.
“The free culture is causing problems in the system. Banks and non-banking finance companies active in the credit card business are providing easy access to credit, which is making individuals over-leverage themselves. They offer customers credit limits much beyond their servicing capacity. The banking ombudsman is flooded with complaints on credit cards and banks’ recovery practices,’’ the sources said.
The RBI is likely to ask banks to put in place prudent credit assessment and credit scoring models in association with the Credit Information Bureau to deny any room to individuals from over-leveraging themselves. “Banks will have to ensure that they issue credit limits after assessing the income, credit limits enjoyed on other credit cards and also the credit servicing capacity of customers,’’ the sources said.
Apart from concerns over deployment of strong-arm tactics for recovery of overdues from individuals, the RBI is also worried that withdrawal of insurance benefits on credit cards as this leaves cardholders unprotected in the event of frauds.
When a lost or stolen credit card is used for making purchases by a fraudster, the card customer is made liable for the dues as there is no insurance cover on free cards.
Purchases made on lost cards are invariably listed as disputed transactions and until the matter is resolved, the affected customers are included in the defaulters’ list. As long as the defaulter tag remains, such customers are denied other credit facilities including home loans.
http://content.msn.co.in/News/Business/BusinessBS_210907_1200.htm
Friday, September 21, 2007
Credit Card Debt in Chapter 7 Cases
In this article, we describe how credit card debt is distributed among different characteristics of chapter 7 no-asset debtors: their location, age, gender and marital status, family size and gross income. We also tease out what we can about the relationship between credit card and medical debts. Our analysis is based on 5,203 no-asset non-business chapter 7 cases that were closed between 2000 and 2002.2 We only included bank-issued credit card debt (e.g., Visa MasterCard, Discover, etc.). Credit card debt for individual stores, which averages $2,917 per case in our population, was not included.
Credit card debt is a major issue in a substantial percentage of consumer bankruptcies. Nearly 90 percent of the cases had at least some debt listed, and it accounted for 42.8 percent of the total general unsecured debt in our sample cases. In the 49 cases with unsecured debts of more than $250,000, only 6.5 percent of the debt was from credit cards, but in the remaining cases, nearly one half (49.6 percent) of the general unsecured debt was from credit cards.
The average credit card debt reported on Schedule F for our cases was $17,738. About 1.1 million no-asset non-business chapter 7 cases will be closed nationwide this year, so we project that these cases will result in the discharge of nearly $20 billion in credit card debt.
Unfortunately, the bankruptcy petitions do not reveal much about how this debt was incurred. We have no information regarding how the credit cards were used—e.g., for medical debt, living expenses, luxury items, gambling, etc. Also, we do not know how much of the listed debt was not for purchases but consisted of annual fees, over-the-limit charges, late fees and interest charges.
Debt Ranges
The median (middle case) credit card debt level was $11,038. This is well below the average debt level ($17,738) because a small percentage of the debtors had very high credit card debt balances. Approximately 7.2 percent of the debtors owed at least $50,000 in credit card debt, accounting for nearly one-third of the total. Projecting these figures nationwide, in 2003 about 80,000 chapter 7 debtors owing at least $50,000 in credit card debt will discharge about $6 billion in such debt.
Credit Card Debt by State
There was considerable variation in the average per-case credit card debt listed by state of residence. States with the highest levels included South Carolina ($25,901), Massachusetts ($25,055), Texas ($24,649), Kansas ($24,037) and Connecticut ($23,943). Jurisdictions with the lowest credit card debt per case included Puerto Rico ($4,835), Arkansas ($11,690), Tennessee ($11,814), Kentucky ($11,894), Oregon ($11,966) and Utah ($12,555).
Family Size
By itself, family size was not a powerful factor in the amount of credit card debt. Debt tends to be a little higher for debtors with families of two and much lower for families of six or more; only a small percentage of debtors have families that large.
Gross Monthly Income
Credit card debt generally increases with the income of debtors. However, about four percent of chapter 7 debtors report no income at the time of filing. These debtors, on average, have higher credit card debt levels than any other income range, except for debtors with incomes of more than $5,000 per month. About three percent of debtors have gross monthly incomes of more than $6,000. Average credit card debt for these high-income debtors is more than twice as high as the average for all chapter 7 debtors.
Gender and Marital Status
In general credit card debt is higher for male debtors than female debtors, and even higher for joint filers. Among non-joint filers, debt levels are somewhat lower for single debtors than for those who are or were previously married.
Age
As we have previously reported,3 credit card debt among chapter 7 debtors is closely associated with age. Only about 20 percent of the debtors in our sample listed their age on Schedule I of their petitions. Generally, credit card debt is less than average for debtors under the age of 45, and higher than average for debtors 45 or older. Elderly debtors (65 or older), on average, have nearly four times as much credit card debt as debtors under the age of 25. It was also interesting to note that the average gross monthly income of the elderly debtors ($1,714) was about 30 percent below the average for all debtors ($2,459).
Credit Card Debt and Medical Debt
More than one half of the debtors did not list any medical debt on Schedule F of their petitions.4 Their credit card debt was higher than that of debtors who reported medical debts, and was more than twice as high as for debtors who listed at least $5,000 in medical debt.
Conclusion
Credit card debt is a significant factor in many bankruptcy cases, and nearly $20 billion is discharged in chapter 7 cases per year. Cases where the debtor has at least $50,000 in credit card debt account for nearly one-third of this amount. Credit card debt levels are particularly high among joint filers, high-income debtors, elderly debtors and debtors with no listed medical debts. They tend to be lower among low- to moderate-income debtors, female debtors, debtors under the age of 35 and debtors with very high medical debts.
http://www.usdoj.gov/ust/eo/public_affairs/articles/docs/abi_1203.html
Credit card debt is a major issue in a substantial percentage of consumer bankruptcies. Nearly 90 percent of the cases had at least some debt listed, and it accounted for 42.8 percent of the total general unsecured debt in our sample cases. In the 49 cases with unsecured debts of more than $250,000, only 6.5 percent of the debt was from credit cards, but in the remaining cases, nearly one half (49.6 percent) of the general unsecured debt was from credit cards.
The average credit card debt reported on Schedule F for our cases was $17,738. About 1.1 million no-asset non-business chapter 7 cases will be closed nationwide this year, so we project that these cases will result in the discharge of nearly $20 billion in credit card debt.
Unfortunately, the bankruptcy petitions do not reveal much about how this debt was incurred. We have no information regarding how the credit cards were used—e.g., for medical debt, living expenses, luxury items, gambling, etc. Also, we do not know how much of the listed debt was not for purchases but consisted of annual fees, over-the-limit charges, late fees and interest charges.
Debt Ranges
The median (middle case) credit card debt level was $11,038. This is well below the average debt level ($17,738) because a small percentage of the debtors had very high credit card debt balances. Approximately 7.2 percent of the debtors owed at least $50,000 in credit card debt, accounting for nearly one-third of the total. Projecting these figures nationwide, in 2003 about 80,000 chapter 7 debtors owing at least $50,000 in credit card debt will discharge about $6 billion in such debt.
Credit Card Debt by State
There was considerable variation in the average per-case credit card debt listed by state of residence. States with the highest levels included South Carolina ($25,901), Massachusetts ($25,055), Texas ($24,649), Kansas ($24,037) and Connecticut ($23,943). Jurisdictions with the lowest credit card debt per case included Puerto Rico ($4,835), Arkansas ($11,690), Tennessee ($11,814), Kentucky ($11,894), Oregon ($11,966) and Utah ($12,555).
Family Size
By itself, family size was not a powerful factor in the amount of credit card debt. Debt tends to be a little higher for debtors with families of two and much lower for families of six or more; only a small percentage of debtors have families that large.
Gross Monthly Income
Credit card debt generally increases with the income of debtors. However, about four percent of chapter 7 debtors report no income at the time of filing. These debtors, on average, have higher credit card debt levels than any other income range, except for debtors with incomes of more than $5,000 per month. About three percent of debtors have gross monthly incomes of more than $6,000. Average credit card debt for these high-income debtors is more than twice as high as the average for all chapter 7 debtors.
Gender and Marital Status
In general credit card debt is higher for male debtors than female debtors, and even higher for joint filers. Among non-joint filers, debt levels are somewhat lower for single debtors than for those who are or were previously married.
Age
As we have previously reported,3 credit card debt among chapter 7 debtors is closely associated with age. Only about 20 percent of the debtors in our sample listed their age on Schedule I of their petitions. Generally, credit card debt is less than average for debtors under the age of 45, and higher than average for debtors 45 or older. Elderly debtors (65 or older), on average, have nearly four times as much credit card debt as debtors under the age of 25. It was also interesting to note that the average gross monthly income of the elderly debtors ($1,714) was about 30 percent below the average for all debtors ($2,459).
Credit Card Debt and Medical Debt
More than one half of the debtors did not list any medical debt on Schedule F of their petitions.4 Their credit card debt was higher than that of debtors who reported medical debts, and was more than twice as high as for debtors who listed at least $5,000 in medical debt.
Conclusion
Credit card debt is a significant factor in many bankruptcy cases, and nearly $20 billion is discharged in chapter 7 cases per year. Cases where the debtor has at least $50,000 in credit card debt account for nearly one-third of this amount. Credit card debt levels are particularly high among joint filers, high-income debtors, elderly debtors and debtors with no listed medical debts. They tend to be lower among low- to moderate-income debtors, female debtors, debtors under the age of 35 and debtors with very high medical debts.
http://www.usdoj.gov/ust/eo/public_affairs/articles/docs/abi_1203.html
Credit Card Debt in Usa: 3 Important Reasons Why it is Getting Out of Control
The debt situation in USA is particularly grim. According to a study an average American owes about $10,000 in debt and that too at a whopping 14% interest rate. What are the most important things that lead a person to credit card debt? In this article we analyse few of them.
1. Overborrowing
Credit cards provide a very easy way to borrow money. Just a swipe and you are done. This ease drives impulsive buying and without any forethought a credit card holder goes on and on making purchases with his credit card, he doesn't ever worry that this credit card money is a debt and has to be repaid with interest.
2. Paying just the monthly minimum
Every credit card statement comes with a minimum payment amount mentioned in it. This is generally a percentage of the outstanding balance on the credit card subject to certain conditions. This is the minimum amount to be paid to the credit card company every month. The sad part is that people take it as the only thing to be done and continue with just the monthly minimum. If you are just paying the monthly minimums on your credit cards each month, a debt of $5000 will take you more than 30 years to repay and in this process you will have paid the credit card an interest of more than $5000. And if your credit card debt is $10,000 and you just pay the monthly minimum chances are good that you will never be able to repay your debt in a lifetime.
3. Multiple credit cards and repayment defaults
Average American household carries around 5 credit cards, which is more than their regular needs. What happens is that with multiple credit cards they falter on repayments and are slapped with a late payment fees, high interest rates and negative remarks on their credit history. This makes getting further credit very costly. To make the matter worse, some people get new credit cards at exorbitant interest rates to repay their existing credit card debt, and are seriously caught in the debt trap.
Credit card debt is growing at an alarming rate, the situation at the savings front is very grim and a crisis like the great depression is looming on American society.
Article Tags: Credit Card Debt, Excessive Credit Card Debt, Reduce Credit Card Debt, Reducing Credit Card Debt, Eliminating Credit Card Debt
Article Source: http://www.articlesbase.com/credit-articles/credit-card-debt-in-usa-3-important-reasons-why-it-is-getting-out-of-control-213327.html
About the Author:
Cynthia Stewart an expert author and credit card consultant,provides great Addvanta credit card tips. Read more credit card articles at his credit card website.
1. Overborrowing
Credit cards provide a very easy way to borrow money. Just a swipe and you are done. This ease drives impulsive buying and without any forethought a credit card holder goes on and on making purchases with his credit card, he doesn't ever worry that this credit card money is a debt and has to be repaid with interest.
2. Paying just the monthly minimum
Every credit card statement comes with a minimum payment amount mentioned in it. This is generally a percentage of the outstanding balance on the credit card subject to certain conditions. This is the minimum amount to be paid to the credit card company every month. The sad part is that people take it as the only thing to be done and continue with just the monthly minimum. If you are just paying the monthly minimums on your credit cards each month, a debt of $5000 will take you more than 30 years to repay and in this process you will have paid the credit card an interest of more than $5000. And if your credit card debt is $10,000 and you just pay the monthly minimum chances are good that you will never be able to repay your debt in a lifetime.
3. Multiple credit cards and repayment defaults
Average American household carries around 5 credit cards, which is more than their regular needs. What happens is that with multiple credit cards they falter on repayments and are slapped with a late payment fees, high interest rates and negative remarks on their credit history. This makes getting further credit very costly. To make the matter worse, some people get new credit cards at exorbitant interest rates to repay their existing credit card debt, and are seriously caught in the debt trap.
Credit card debt is growing at an alarming rate, the situation at the savings front is very grim and a crisis like the great depression is looming on American society.
Article Tags: Credit Card Debt, Excessive Credit Card Debt, Reduce Credit Card Debt, Reducing Credit Card Debt, Eliminating Credit Card Debt
Article Source: http://www.articlesbase.com/credit-articles/credit-card-debt-in-usa-3-important-reasons-why-it-is-getting-out-of-control-213327.html
About the Author:
Cynthia Stewart an expert author and credit card consultant,provides great Addvanta credit card tips. Read more credit card articles at his credit card website.
A Beginner's Guide to Bad Credit Secured Loans
Here is a useful beginner's guide to bad credit secured loans. If your credit is less than perfect but you find yourself needing money now, you might want to look into bad credit secured loans. If you're not sure what these are, bad credit secured loans are loans designed for people who are considered credit risks by many institutions. They're called "secured" loans because they require some sort of security deposit (also known as "collateral"), which helps to protect the lender against some of the risk of lending. These loans allow you to get the money that you need without having to pay outrageous fees, and as long as you pay the bad credit secured loan back on time then there's no real risk to your collateral.
Common types of collateral
While collateral can be pretty much anything with a value equal to or greater than the amount of the bad credit loan, the most common types of collateral are automobiles and real estate. With most bad credit secured loans, you don't even have to give up your collateral… you get to keep driving your car and can still live in your house, but the bank or other lender gains a legal claim to the title or the deed so that if you don't repay the bad credit loan (also known as "defaulting") then they can repossess the collateral and sell it to get their money back. Of course, with some types of collateral the lender might prefer to hold onto it until the loan is repaid; common collateral of this type is jewelry, rare coins, or other small-but-valuable items. This practice helps to insure that the property you're using as collateral isn't lost or stolen before the time they would have to repossess.
Getting bad credit secured loans
Some lenders don't offer bad credit secured loans… even with the collateral, they consider them to be too much risk. Other lenders deal almost exclusively in bad credit secured loans, using the mindset that people with bad credit have to go somewhere and that their establishment might as well be that place. Shop around before deciding on a single place, seeing what interest rates and repayment terms various lenders offer. You might even check out some of the many lenders online.
Once you've decided on a lender, go and apply for your loan. The maximum amount that you'll likely get will still be a lot less than the value of your collateral… after all, the lenders who deal in bad credit secured loans want to make sure that they'll recover their money even if your collateral doesn't sell for much. Once you've obtained your loan, work to pay it back as quickly as possible; not only will this remove any danger of you losing your collateral, but it will also create a good impression with this lender should you need to borrow money from them again someday.
You may freely reprint this article provided the following author's biography (including the live URL link) remains intact:
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
http://credit-cards.ws/A-Beginners-Guide-To-Bad-Credit-Secured-Loans.html
Common types of collateral
While collateral can be pretty much anything with a value equal to or greater than the amount of the bad credit loan, the most common types of collateral are automobiles and real estate. With most bad credit secured loans, you don't even have to give up your collateral… you get to keep driving your car and can still live in your house, but the bank or other lender gains a legal claim to the title or the deed so that if you don't repay the bad credit loan (also known as "defaulting") then they can repossess the collateral and sell it to get their money back. Of course, with some types of collateral the lender might prefer to hold onto it until the loan is repaid; common collateral of this type is jewelry, rare coins, or other small-but-valuable items. This practice helps to insure that the property you're using as collateral isn't lost or stolen before the time they would have to repossess.
Getting bad credit secured loans
Some lenders don't offer bad credit secured loans… even with the collateral, they consider them to be too much risk. Other lenders deal almost exclusively in bad credit secured loans, using the mindset that people with bad credit have to go somewhere and that their establishment might as well be that place. Shop around before deciding on a single place, seeing what interest rates and repayment terms various lenders offer. You might even check out some of the many lenders online.
Once you've decided on a lender, go and apply for your loan. The maximum amount that you'll likely get will still be a lot less than the value of your collateral… after all, the lenders who deal in bad credit secured loans want to make sure that they'll recover their money even if your collateral doesn't sell for much. Once you've obtained your loan, work to pay it back as quickly as possible; not only will this remove any danger of you losing your collateral, but it will also create a good impression with this lender should you need to borrow money from them again someday.
You may freely reprint this article provided the following author's biography (including the live URL link) remains intact:
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the www.directonlineloans.co.uk website.
http://credit-cards.ws/A-Beginners-Guide-To-Bad-Credit-Secured-Loans.html
Credit card companies woo struggling mortgage-holders
As subprime borrowers began to default on their mortgages in rapidly growing numbers this year, credit card issuers increased their efforts to sign up such customers with tarnished financial histories, according to a market research firm.
Direct mail credit card offers to subprime customers in the United States jumped 41 percent in the first half of this year, compared with the first half in 2006, according to Mintel International Group. Direct mail offers targeted at customers with the best credit fell more than 13 percent.
Yet, during this same period, defaults on subprime mortgages, which charge higher interest rates because the borrowers' blemished credit makes them bigger risks, rose significantly. In June, nearly 1 in 5 subprime mortgages were at least 60 days past due, and more than 1 in 20 were in foreclo sure, according to First American LoanPerformance, a San Francisco firm that collects and analyzes mortgage data.
Though it seems counterintuitive to extend credit to households already struggling with debt, the meltdown in housing and mortgage markets probably led credit card issuers to boost their marketing to subprime customers, said Julie Lizer, Mintel's manager of custom research.
As home values decline and lenders balk at writing subprime mortgages, these customers can no longer refinance and tap into home equity for cash. That leaves credit cards as their only option, said Lizer.
The increase in direct mail to subprime customers tracks the slide in the housing market. In June, mail offers to these households were nearly double those of June 2005, near the peak of the US housing market, she said. Mintel estimates mail volumes based on surveys of representative US households.
"The companies are seeing a market need, and filling it by increasing mail to these consumers," said Lizer.
But consumer advocates worry that targeting subprime customers may worsen their problems.
"This causes us great concern that some major credit card issuers are marketing to people who are in a risky financial position," said Travis Plunkett, legislative director of the Consumer Federation of America. "It's another sign that some credit card issuers are engaging in risky, irresponsible lending to vulnerable consumers."
Plunkett, in Congressional testimony earlier this year, cited research that showed fees charged to subprime borrowers making late card payments can exceed their interest payments. Borrowers are classified as subprime if they have past credit problems, such as late or missing payments.
The subprime mortgage meltdown has sent ripple effects throughout the economy. In recent months, several mortgage companies specializing in subprime loans, including New Century Financial Corp., the nation's second-largest subprime mortgage lender, filed for bankruptcy.
The problem then spread to financial markets, wiping out hedge funds that invested heavily in subprime mortgages, and forcing the Federal Reserve and central banks of other nations to pump more than $100 billion into the global banking system to avert a credit crisis. Many financial analysts believe the Fed may soon cut a key interest rate to stabilize the economy.
http://www.boston.com/business/personalfinance/articles/2007/09/04/credit_card_companies_woo_struggling_mortgage_holders/
Direct mail credit card offers to subprime customers in the United States jumped 41 percent in the first half of this year, compared with the first half in 2006, according to Mintel International Group. Direct mail offers targeted at customers with the best credit fell more than 13 percent.
Yet, during this same period, defaults on subprime mortgages, which charge higher interest rates because the borrowers' blemished credit makes them bigger risks, rose significantly. In June, nearly 1 in 5 subprime mortgages were at least 60 days past due, and more than 1 in 20 were in foreclo sure, according to First American LoanPerformance, a San Francisco firm that collects and analyzes mortgage data.
Though it seems counterintuitive to extend credit to households already struggling with debt, the meltdown in housing and mortgage markets probably led credit card issuers to boost their marketing to subprime customers, said Julie Lizer, Mintel's manager of custom research.
As home values decline and lenders balk at writing subprime mortgages, these customers can no longer refinance and tap into home equity for cash. That leaves credit cards as their only option, said Lizer.
The increase in direct mail to subprime customers tracks the slide in the housing market. In June, mail offers to these households were nearly double those of June 2005, near the peak of the US housing market, she said. Mintel estimates mail volumes based on surveys of representative US households.
"The companies are seeing a market need, and filling it by increasing mail to these consumers," said Lizer.
But consumer advocates worry that targeting subprime customers may worsen their problems.
"This causes us great concern that some major credit card issuers are marketing to people who are in a risky financial position," said Travis Plunkett, legislative director of the Consumer Federation of America. "It's another sign that some credit card issuers are engaging in risky, irresponsible lending to vulnerable consumers."
Plunkett, in Congressional testimony earlier this year, cited research that showed fees charged to subprime borrowers making late card payments can exceed their interest payments. Borrowers are classified as subprime if they have past credit problems, such as late or missing payments.
The subprime mortgage meltdown has sent ripple effects throughout the economy. In recent months, several mortgage companies specializing in subprime loans, including New Century Financial Corp., the nation's second-largest subprime mortgage lender, filed for bankruptcy.
The problem then spread to financial markets, wiping out hedge funds that invested heavily in subprime mortgages, and forcing the Federal Reserve and central banks of other nations to pump more than $100 billion into the global banking system to avert a credit crisis. Many financial analysts believe the Fed may soon cut a key interest rate to stabilize the economy.
http://www.boston.com/business/personalfinance/articles/2007/09/04/credit_card_companies_woo_struggling_mortgage_holders/
Credit Card
What type of credit card user are you? Credit card companies group their customers according to usage and bill-paying habits. What do the credit card companies call you?
Are you a deadbeat? No, not what we normally think of when we think of deadbeats. If you pay off your credit card bills in full and on time every month, credit card companies call you a deadbeat because you don't make them any money. The credit card companies may not like you much, but you are a responsible user of credit cards.
Or are you a revolver? You may or may not pay on time, but you always carry a credit card balance. You are the credit card companies' favorite type of customer because every month they earn interest on your outstanding balance. Credit card companies make billions of dollars in interest every year from revolvers.
The final group of credit card users is the rate surfer (or gamer). Rate surfers flip credit cards and transfer balances to get lower interest rates on their credit cards. You're a tad annoying to credit card companies, but if you just have to carry a balance - and you play it right - you may be beating the credit card companies at their own game.
If you have a credit card or have ever used one, you're probably familiar with the following terms but if you're not, it's time to learn the language of credit cards.
APR is the annual percentage rate your are charged for the use of credit cards. It is also referred to as the interest rate and it's the cost of borrowing money unless you pay off your entire credit card balance each month in which case you won't pay any interest but most credit card consumers carry an outstanding balance and pay the APR on that amount.
The grace period is the time period - measured from the moment of purchase - during which you are not charged any interest. The grace period on credit cards is usually 25 to 28 days. The practice of offering grace periods on credit cards is shrinking so make sure your credit card has one and confirm how long it is.
The annual fee is what you are charged each year for the privilege of using the credit card. It can be avoided and with the fierce competition in the credit card industry today, there's really no reason to have a credit card that requires an annual fee. Other credit card fees include balance transfer fees, cash advance fees, special services, and over-limit charges.
The outstanding balance is the full amount you owe on the credit card including any fees. The finance charge is the monthly fee added to your credit card balance based on the monthly interest rate. It is determined by dividing your APR by 12 then multiplied by your outstanding balance.
As you can see, there are complicated costs associated with signing up for a credit card and not paying it off in full every month. Of course, in a perfect world (at least from a credit card consumers standpoint) we would all pay our credit card balances in full each month so as to not have any outstanding balances and not pay any finance charges. But unfortunately, the majority of credit card users are at least somewhat financially irresponsible and the credit card companies profit to the tune of billions of dollars in finance charges and other fees each year.
http://www.top10moneysecrets.com/creditcard.php
Are you a deadbeat? No, not what we normally think of when we think of deadbeats. If you pay off your credit card bills in full and on time every month, credit card companies call you a deadbeat because you don't make them any money. The credit card companies may not like you much, but you are a responsible user of credit cards.
Or are you a revolver? You may or may not pay on time, but you always carry a credit card balance. You are the credit card companies' favorite type of customer because every month they earn interest on your outstanding balance. Credit card companies make billions of dollars in interest every year from revolvers.
The final group of credit card users is the rate surfer (or gamer). Rate surfers flip credit cards and transfer balances to get lower interest rates on their credit cards. You're a tad annoying to credit card companies, but if you just have to carry a balance - and you play it right - you may be beating the credit card companies at their own game.
If you have a credit card or have ever used one, you're probably familiar with the following terms but if you're not, it's time to learn the language of credit cards.
APR is the annual percentage rate your are charged for the use of credit cards. It is also referred to as the interest rate and it's the cost of borrowing money unless you pay off your entire credit card balance each month in which case you won't pay any interest but most credit card consumers carry an outstanding balance and pay the APR on that amount.
The grace period is the time period - measured from the moment of purchase - during which you are not charged any interest. The grace period on credit cards is usually 25 to 28 days. The practice of offering grace periods on credit cards is shrinking so make sure your credit card has one and confirm how long it is.
The annual fee is what you are charged each year for the privilege of using the credit card. It can be avoided and with the fierce competition in the credit card industry today, there's really no reason to have a credit card that requires an annual fee. Other credit card fees include balance transfer fees, cash advance fees, special services, and over-limit charges.
The outstanding balance is the full amount you owe on the credit card including any fees. The finance charge is the monthly fee added to your credit card balance based on the monthly interest rate. It is determined by dividing your APR by 12 then multiplied by your outstanding balance.
As you can see, there are complicated costs associated with signing up for a credit card and not paying it off in full every month. Of course, in a perfect world (at least from a credit card consumers standpoint) we would all pay our credit card balances in full each month so as to not have any outstanding balances and not pay any finance charges. But unfortunately, the majority of credit card users are at least somewhat financially irresponsible and the credit card companies profit to the tune of billions of dollars in finance charges and other fees each year.
http://www.top10moneysecrets.com/creditcard.php
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