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With unemployment remaining high, its likely that credit card defaults will remain a problem for the U.S. economy for the near future. In 2009, most major credit card company saw default rates among their customers reach figures above 10 percent. While the number of people defaulting on their credit cards has abated somewhat in recent months, the precarious state of the economy leaves the specter of more defaults lingering over the credit card industry.

Defaults hurt credit card companies, leaving them with unpaid debts that impact their bottom line. Credit card defaults also hurt the people who can’t or won’t make their credit card payments, leaving them with financial problems that can plague them for years.

When you fall behind on your credit card payments, your credit card company can hit you with a penalty rate. These penalty rates can be up to 30 percent in some cases and help put you even deeper in debt. New federal regulations have given credit card holders some breathing space, however. Credit cardholders must now be at least 60 days late on a payment before credit card companies can invoke penalty rates.

In addition to penalty rates, cardholders can also be hit with late fees if they fall behind. If the extra interest from the penalty rate and the cost of the late fees drives the cardholders’ balance above their credit limit, they may also be hit with over-the-limit fees.

Credit card default occurs when cardholders fail to make payments for a significant period of time, usually six to eight months. When credit card companies don’t receive payments for six months or more, they charge off the debts. This means they remove the debt from account receivable and submit it for collections. The card holder is still liable for the debt and will likely pay much higher interest rates and other fees associated with the default.

When a credit card account goes to collections, bill collectors will begin contacting the cardholder directly to request payment. If the creditor is still unable to pay the debt after several months, the debt is then likely to be referred to a third-party collection agency. These collectors are commonly much more pro-active in their collection efforts, and will likely frequently call you and may even call you at work or leave messages with your neighbors.

If third-party collectors can’t collect the debt, they may take cardholders to court to collect the owed amount. The cost of legal fees will be charged to the debtor leaving him or her even deeper in a financial hole. If the collection agency or creditor wins a judgment in its favor, your wages can be garnished and liens placed against your home or other property.

When you default on a credit card debt, it leaves a dark mark on your credit history that will impair your ability to borrow, and borrow at attractive interest rates for many years to come. When you default on a credit card, the credit card company reports the default to the credit bureaus. A default can significantly impact your credit score, thus making it harder for you to get a loan for a house, car or educational needs. Even if you are able to get a loan, the interest rates will be high because you’re a poor credit risk.

There are a number of ways you can avoid default, but it requires fiscal discipline and a willingness to sacrifice. For starters, if you’re starting to get behind on credit card payments, it is imperative that you contact the credit card company and try to work out a payment plan. Many credit card companies are willing to work with their customers to work out a payment plan rather than have the account go into default and being required to spend time and resources on the collections process.

Consolidating your debts may help you avoid defaulting on a credit card debt. By combining your debts all into one, you’ll most likely decrease the amount of money you must pay out each month in minimum monthly payments.

Another tactic you may employ if your credit card account is going into default is filing for bankruptcy protection. This may get much of the debt forgiven or allow you to repay it in an easier manner, but it will negatively impact your credit rating for nearly 10 years. Bankruptcy is looked at very negatively by lenders, and will significantly impact your ability to borrow and increase the interest rate you’ll have to pay.

Credit cards have become a ubiquitous part of the American economy. More than 145 million citizens use them, and businesses often have multiple credit cards account. While most people are aware that they’ll have to pay a price in the form of interest for the privilege of borrowing the credit card companies’ money, some credit cards come with hidden costs that cardholders aren’t savvy enough to see in their statements, or that they become painfully aware of later.

There’s little wonder why credit cards have become so widespread in the American and global economies. They’re easier and more convenient than cash or checks, and can provide an essential lifeline in emergency situations. Nearly 40 percent of American credit cardholders carry a balance from month to month, reaping billions in yearly profits for credit card companies from interest alone. Along with interest however, there are other revenue streams credit card companies derive from their business, some of which are obscured from the awareness of most customers. Some of these hidden costs are built into the cardholders regular monthly statement, others are triggered by specific events or circumstances.

For starters, many credit card companies have clauses in the credit card agreement that penalize cardholders for falling behind on payments to other accounts, even if they haven’t missed a payment to that particular account. Universal default, as it’s called, can jack up the monthly interest rates to 29 percent or more. With some cards, universal default can be triggered if you miss just one payment to another credit account.

Universal default has been widely derided as an unfair practice, and recent legislation has banned credit card companies from applying universal default rates to current balances. However, if a cardholder triggers his or her charge accounts universal default clause, this rate can still be applied to new purchases on that account. For example, if a cardholder with a $1,000 balance on an ACME card account triggers the universal default clause by falling behind on a payment to another creditor, ACME cannot apply the new 29 percent interest rate to that $1,000 balance, but it can apply the rate to new purchases.

Low minimum payments may sound like a blessing, but if you only make minimum payments, you’ll take longer to pay off your debt, and end up paying much more in interest. New regulations have required most credit card companies to increase minimum payments from 2 to 4 percent of the card’s outstanding balance each month.

Another hidden cost cardholders often get popped with are rate changes or changes to teaser rates. Many credit card companies hook new customers with low introductory rates that can be as little as zero percent. These rates usually go up after about six months, and card holders must then pay a higher rate. The teaser rates are good for customers who wish to transfer existing debt to the account and then pay it off quickly, but if these cardholders are undisciplined, they could end up paying higher rates on unpaid balances.

Many cardholder agreements also give credit card companies the right to change rates and fees for any reason with little notice. Recent federal regulations have clamped down on this practice, but card companies can still make changes, and fairly quickly.

When a credit card company offers a promotional rate, and then shifts to the regular rate later, the payments you make on your balance are usually applied to purchases you made at the lower rate first, leaving the higher rate debt on your account for a longer period of time, allowing it to rack up more interest. This is common to accounts where the cardholder takes cash advances, which are generally assessed at a higher interest rate than regular purchases.

If all this wasn’t enough, many cards also charge many fees that cardholders may not discover until they’re billed for them. These fees can include annual fees, transaction fees, over-the-limit fees, balance transfer fees and application fees, among others.

Credit cardholders can dodge the hidden costs of having a credit card by carefully reading card agreements and choosing only credit cards that come with favorable terms. Another good idea is to pay off your account balance each month. Folks who need long-term credit may want to consider a home equity loan instead of charging items to credit card. Most home equity loans have far more attractive interest rates than credit cards do.

Overall, avoiding hidden costs related to credit cards is possible through diligence and an understanding of your credit card agreement. Be careful that you fully understand the terms of any credit card agreement you enter into, especially those advertised with “too good to be true” teaser rates. Also keep current on other accounts to avoid triggering universal default clauses.