More and more people are falling into problematic credit card debt cycles, according to research from the New Economics Foundation (NEF) think-tank released yesterday (7 February 2017).
Using data from the Financial Conduct Authority (FCA) and other sources, NEF has found that credit card debt is increasingly becoming as unmanageable for individuals as payday lending debt used to be.
The average client who reaches out to PayPlan* has over £3,300 worth of credit card debt. We see that credit card debt makes up 30% on average of their total debt composition, with payday loans (21%) and personal loans (18%) the next highest percentages.¹
Over half of those in credit card debt are classed as either ‘surviving’ (36%) or in ‘difficulty’ (23%) with their finances by the FCA. The other 41% of those who have credit card debt outstanding at the end of the month are deemed financially resilient.
In the past few years, regulators have cracked down on payday lenders and now it seems that credit cards are next in line.
Stella Creasy, MP for Walthamstow, said: “If the FCA is timid on this, then the government should act and bring in legislation to require them to cap credit cards too and protect millions of consumers. We took too long to act as a country on the damage the likes of Wonga were doing. We must not make the same mistake.”
This, coupled with the news from ING International Survey, that more than 1 in 4 households in the UK have no emergency savings pot is worrying. Thus, if an emergency fund was needed individuals would be likely to turn to credit cards for a cash injection.
With borrowing costs likely to increase from the expected continuing rise of the Bank of England interest rate, it could be detrimental to many households who are currently just surviving.
Jane Clack, IMA Chair and Money Advice Consultant at PayPlan said: “What is shocking is the number of people who have no savings to tide them over if things were to change and do not realise how quickly their debts can escalate. People need to be aware of how much they are repaying each month on credit cards and realise that minimum payments are not going to pay things off quickly. With the Bank of England today saying that interest rates are expected to rise by May this year this will be reflected very quickly in interest rate increases on cards etc.”
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