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Credit Card Debt
In the year 2002 there were over 1.3 million bankruptcies, and the majority were caused by unmanageable credit card debt. If you find yourself living paycheck to paycheck, barely able to make your monthly payments, it's time you get serious about your finances.
Credit card debt results when a client of a credit card company purchases an item or service through the card system. Credit card debt accumulates and increases via interest and penalties when the consumer does not pay the company for the money he or she has spent. The results of not paying this credit card debtt on time are that the company will charge a late payment penalty (generally in the US from $10 to $40) and report the late payment to credit rating agencies. Being late on a payment is sometimes referred to as being in " default ". The late payment penalty itself increases the amount of credit card debt the consumer has.
A credit card is different from a debit card in that it does not remove money from the user's account after every transaction. In the case of credit cards, the issuer lends money to the consumer (or the user) to be paid to the merchant . A credit card allows the consumer to 'revolve' their balance, at the cost of having interest charged. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect (see Fair Credit Billing Act for details of the US regulations). Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date , or may choose to pay a higher amount up to the entire amount owed.
Secured credit cards are an option to allow a person with a poor credit history or no credit history to have a credit card which might not otherwise be available. They are often offered as a means of rebuilding one's credit. Secured credit cards are available with both Visa and MasterCard logos on them. Fees and service charges for secured credit cards often exceed those charged for ordinary non-secured credit cards, however, for people in certain situations, (for example, after charging off on other credit cards, or people with a long history of delinquency on various forms of debt), secured cards can often be less expensive in total cost than unsecured credit cards, even including the security deposit. Secured debts usually are tied to an asset, like your car for a car loan, or your house for a mortgage.
A prepaid credit card is not really a credit card, as no credit is offered by the card issuer: the card-holder spends money which has been "stored" via a prior deposit by the card-holder or someone else, such as a parent or employer. However, it carries a credit-card brand (Visa or MasterCard) and can be used in similar ways. They are hard to find and have higher APR fees and higher interest costs. After purchasing the card, the cardholder loads it with any amount of money and then uses the card to spend the money. Prepaid cards can be issued to minors since there is no credit line involved. The main advantage over secured credit cards is that you are not required to come up with $500 or more to open an account. With prepaid credit cards you are not charged any interest but you are often charged monthly fees after an arbitrary time period.
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