The vast majority of people in the United States have credit cards, according to the Nilson Report. It states that 78 percent of households in the U. S. had one or more credit card accounts at the end of 2008. Not everyone who owns a credit card uses it regularly, and many consumers pay the balance in full each month, but the Federal Reserve estimates that over half carry a balance from month to month. That balance is known as credit card debt.
Definition
Credit card debt means the amount of money you owe to one or more credit card companies. You may only have one card on which you owe a balance or you may be paying off several accounts at once. All banks charge interest on credit card accounts unless you have a promotional zero percent rate, which typically runs for a limited time period.
Prevalence
The Nilson Report found that overall credit card debt in America was $972.73 billion at the end of 2008. It also found that average per-household credit card debt was $8,329, even if the household was not currently using a credit card. Those currently using credit cards had debt of $10,679 spread out among all their accounts.
Procedure
Credit card debt is paid monthly. You have the option of paying your balance in full at any time. Otherwise you will be required to make a minimum monthly payment, which is calculated by the credit card company and listed on your billing statement. You can also pay more than the minimum payment if you wish. This makes the debt go down more quickly, since more money will be applied to the balance rather than the interest charges. Often the minimum payment covers little more than the interest.
Level
Your credit score is based in part on your level of credit card debt. Credit score compiler Fair Isaac Corp. (FICO) looks at how much you owe on your credit cards and other accounts and calculates the proportion of debt as compared to available credit lines. This makes up 30 percent of your FICO credit score.
Effects
Credit card debt affects the household budget because it requires monthly payments. Missed payments can cause profound harm to your credit rating, FICO warns. Thirty-five percent of your FICO score is based on whether you make on-time payments, so your score goes down for every late or missed credit card payment. Card issuers will often close the account if you pay erratically. You will still have to pay off the amount owed, but you don't be able to use the card for future purchases. The issuer may also impose late payment fees on top of the amount you already owe.
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