CREDIT CARD DEBT CRISIS COUNTY COURT BANKRUPTCY

Credit card debt is an example of unsecured consumer debt, accessed through ISO 7810 plastic credit cards.

Debt results when a client of a credit card company purchases an item or service through the card system. 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 debt 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 debt the consumer has.

When a consumer has been late on a payment, it is possible that other creditors, even creditors the consumer was not late in paying, may increase the interest rates the consumer is paying. This practice is called universal default.

If the customer is carrying an amount of debt that is so high that it is over their credit limit, then they might be charged an over-the-limit fee of up to $39 until their balance is paid down to below their credit limit. This, too, may add to the consumer's debt.

Credit card debt is said to be increasing in the industrialized countries. The average U.S. college graduate begins his or her post-college days with more than $2,000 in credit card debt.

Sometimes the late fees, high annual percentage rates (APRs), and universal default overcome consumers who frequently do not pay off their debt, and the customer declares bankruptcy. If a customer files for bankruptcy, the credit card companies are required to forgive all or much of the debt, unless such discharge of debt is successfully challenged by one or more creditors, or blocked by a bankruptcy judge on legal grounds irrespective of creditors' challenges.

Because forgiveness of debt reduces likelihood of profit and continued survival, the companies are generally willing to offer another deal to the consumers in danger of bankruptcy. This deal consists of reduced APRs, removal of past late fees and penalty charges, and reaging the accounts so that the credit agencies see them as late accounts.

Some credit card companies made lobbying efforts at the federal level to tighten American bankruptcy law, making it harder to have credit card debts canceled.[2] Recently it was reported that Americans are paying off credit card debt more frequently, and this was attributed in part to the bankruptcy legislation supported by the companies.

Germany, as an example for a country which did not have a notion of personal bankruptcy at all until the early 2000s, and still makes the process very much more difficult than the United States, has consistently had much lower levels of credit card debt. On the other hand, a debtor in Germany is very much in a worse position than one in the United States.

Reality check

The first step on the road out of debt is to admit - to yourself - just how much trouble you're actually in.

So, before you do anything else, work out your expenditure, and exactly how much you owe.

Once you've done this, you should have a much clearer idea of where corners can be cut.

According to Fool.co.uk, seven out of ten credit applications are likely to be rejected by the time we reach 2012.

For the millions of Britons who are currently getting by on plastic, this is obviously a pretty scary thought. What would our lives be like if we couldn't use credit cards, or go into our overdrafts, or take out loans?

However, every cloud really does have a silver lining. This could be the push we all need to hoist ourselves out of debt - and there's still time to get our finances in order.

Obviously, one way to protect yourself from future turbulence in the credit markets is to try to get into a position where you don't need so much credit. Have a look at the tips below to get away from being credit-dependent:

1. Reduce your outgoings

To minimise your need for credit in the future, you need to tackle the debts you have right now.

So, have a look at your outgoings. If you can, cut the interest payments on your debts. For example, switch your credit card debt to one offering 0% on balance transfers. This means you will stop paying interest on your existing debt, and should allow you to pay it off quicker (as long as you stop spending!).

Set yourself a goal - for example, to reduce your monthly outgoings by £100. Shaving money off household bills, cutting your travel costs and remortgaging your home could all be ways to achieve this.

2. The snowball effect

Once you've whittled down your outgoings to a minimum, snowball your remaining debts. This will help clear them as quickly, and cheaply, as possible.

To do this, work out which of your debts is charging the most interest. That's the one that's growing the fastest - so attack it first.

But before you start, remember that you need to make the minimum payments on all of your borrowings. If you have any spare cash after this, aim it at the most expensive debt. If you don't have any spare cash, make switching this expensive debt to a loan or a credit card that charges less interest a top priority.

When you've paid this 'nasty' off, switch your attention to the next most expensive debt. The cash 'snowballs' you throw at your debt will get larger and larger, and eventually you'll be clear of all your debt.

3. Try to up your income

Another good way to get out of the red is to up your income. Even an extra £100 a month could make a big dent in your debts - and paying them off more quickly could save you hundreds, or even thousands, in interest charges.

4. Saving for a rainy day

After all that dealing with debt, you might think you deserve a reward. By all means enjoy yourself, but don't go spending mad! Instead, start saving your spare cash to set up an emergency fund.

That way, you'll be in an excellent position to weather the predicted financial storms ahead. Remember, you're not alone. See the links below on this page for free impartial advice on how to deal with this growing problem.

The Citizens Advice Bureau service offers free, confidential, impartial and independent advice.

You can find out details of your local CAB by using the website's online directory (see link on right) or by looking up its local offices in your telephone directory.

For agencies in Northern Ireland, contact the Association of Independent Advice Centres on 028 9064 5919.

The following agencies hold information about people's credit histories. When you apply for a loan or credit card, this information is taken into account before any deal can be approved. You can always check your credit history to make sure the information is correct, by contacting these agencies.

Experian Ltd
Consumer Help Service
P.O. Box 8000
Nottingham
NG80 7WF
08702 416 212

Equifax Credit Information
Credit File Advice
PO Box 1140
Bradford
B21 50S
08705 143 700

Ireland:
Irish Credit Bureau
ICB House
Newstead
Clonskeagh
Dublin 14
00 353 1 260 0388 (From UK)
01 260 0388 (From Ireland)

The commissioner is responsible for enforcing the law regarding data protection and freedom of information

The service provides information for individuals and businesses affected by insolvency.

the Financial Ombudsman Service provides consumers with a free, independent service for resolving disputes with financial firms

The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal

The Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS

The FSCS may pay compensation if an authorised firm is unable to pay claims against it.

Financial Services Compensation Scheme
7th Floor
Lloyds Chambers
Portsoken Street
London
E1 8BN

The council is the watchdog established to set, monitor and enforce standards in all areas of general insurance, including the fair treatment of customers.

The Institute of Chartered Accountants is the largest professional accountancy body in Europe, with over 125,000 members.

Institute of Chartered Accountants in England & Wales
Chartered Accountants' Hall
PO Box 433
Moorgate Place
London
EC2P 2BJ

The Institute is the professional body that represents those involved financial planning.

The Association campaigns on key issues related to consumption of goods and services

The Consumer Credit Association represents businesses involved in the UK credit industry

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