by Louis Georges

Created on: January 12, 2009

Since 1958, when American Express issued the first widely accepted plastic charge card, credit card lending has grown into a billion dollar industry. According to the US Census Bureau, there were 164 million credit card holders in the United States in 2005. The Federal Reserve reports that total US consumer revolving debt reached 976 billion dollars in 2008, 98% of which was credit card debt. One of the keys to solvency for the typical credit card indebted family is the successful management of their credit cards.

The banks that provide credit cards do so in order to turn a profit. Their practices are geared towards minimizing risk and maximizing return on their investments, their investments being the money they loan to consumers via credit cards. In order to maximize revenue and minimize exposure, banks have, over the years, evolved their credit card user agreements such that they now penalize the consumer for any violation. The fundamental key to managing unsecured debt is to understand the user agreement and avoid violations which may trigger punitive actions.

The most common violation of the user agreement is a failure to pay on time. Credit cards typically require a monthly minimum payment, the amount of which is calculated based on the previous month's balance. The payment is required by a certain date every month. The consumer must be aware of the minimum payment and the due date. Failure to make the payment on time will result in a late fee and may result in an increased interest rate. Payments that are more than 30 days late will be report to the credit bureaus, resulting in a reduced credit score for the consumer.

In the case of credit cards with promotional rates, a single late payment will usually result in the termination of the promotional rate. The interest rate will automatically and immediately increase to the nominal rate for the card.

It is also common for a promotional rate to apply only to specific items, such as balance transfers or new purchases. In these cases, the minimum payment will be based on the promotional rate applied to the designated part of the balance plus the nominal interest rate applied to the remainder of the balance.

The ideal method of managing credit cards is to pay the balance in full every month. This ensures compliance with the user agreement.
However, the Federal Reserve reports that in 2004, 74.9% of US families had credit cards and that 58% of those families carried a balance. For those carrying a balance, it is

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