Payday debt and credit card debt

The numbers are interesting regarding payday debt and credit card debt in the United Kingdom. With all the scrutiny that the payday lending sector has been receiving amid accusations of luring the British public into debt, it seems there is a credit provider flying under the radar; credit card providers.

Britain has Europe’s largest credit card industry and it is worth a whopping 150 billion pounds each year! This is no small amount. As many as 30 million citizens in the United Kingdom are the proud owners of a credit card. The grand total of national credit card debt is an enormous 60 billion pounds. According to the StepChange Debt charity, more than 500 000 people ask them for help each year. Help, that is, with their credit card debt. StepChange states that the average UK citizen is indebted to the amount of 10 000 pounds in credit card debt. StepChange also says that 10 percent of credit card holders own five or more credit cards.

StepChange believes that there are too many people relying on credit cards as their safety net. The charity believes that relying on credit cards is a trap leading to problems with debt. Credit card debt is one of the most common forms of debt that StepChange encounters. They say that many people are having a struggle with multiple debts.

The credit card market is to face an investigation by the Financial Conduct Authority (FCA). The investigation will focus on how complicated the terms and conditions of credit cards are as well as how transparent and fair the terms are. They will also investigate if or how a client is able to switch between providers of credit cards. Credit card marketing practices will also come under investigation and under scrutiny will be the packages that come with the cards. The client’s best interest will be investigated because there is currently a trend for providers to “wear down” any potential client with shady marketing. One marketing ploy is to approve people for credit cards when they have not applied for the credit cards.

According to Richard Koch, Head of Policy at the UK Cards Association” “The industry has a longstanding commitment to responsible lending and transparency” Mr Koch added that many changes had been introduced over the past five years and these changes included credit limits and the re-pricing of debt. He also states that there has been improved transparency and tolerance for clients who miss repayments.

Some in the Payday Loans industry still has a way to go to clean up the way they do business and so does the credit card industry. In reality, credit cards are not far from being the short-term high-interest loans that the payday lenders are accused of.

Relying on debt: unsecured personal debts

Towards the end of last year, UK citizens reportedly ran up the highest amount of debt since 2007. In November, heading towards the festive season, a collective 1.25 billion pounds was borrowed. The amount of 1.25 billion pounds was apparently mostly unsecured personal debts. The debts were in the form of payday loans, short-term high-interest loans, credit cards, credit cards and store cards. Nationaldebtline and StepChange are worried about the way people are relying so heavily on credit. These charities expect that, with the trend of borrowing so heavily, they will have more and more people knocking at their doors asking for help on how to manage their overwhelming debts.

Now, in 2015 credit is much easier to obtain that it was in the leaners years of 2009 and 2010 when financial institutions were very tight-fisted. Credit providers are actively trying to sign people up for their credit. The trade body for people working in the insolvency sector, R3, has completed research showing that one-fourth of British adults had plans to take out credit to help pay for their overspending over the 2014 festive season. 50 percent of those had hopes of using their credit card and 24 percent were planning to appeal to their bank for an overdraft. 14 percent were planning to finance their festive spending with store cards. Payday loans and new credit cards were other ways of paying off debts.

Banks are coming out of hibernation once again and they are desperately trying to sign up new customers. Banks are focusing on getting customers to move their debt from other banks and in order to achieve this they often have to take on the customer as well as his existing debt. Not only are banks taking on customers with existing debt but they are offering these same customers increasingly long interest-free loan periods in order to win the customer over. Lloyds Bank and Halifax have recently launched a marketing campaign offering zero interest over a 34 month period to clients switching to them. Barclaycard had beaten them by already offering zero percent for 35 months.

Back in fashion are personal loans when a mere six years ago it was almost impossible to secure a personal loan from any bank. It is possible to find a bank willing to offer you a loan for a mere 3.9 percent as opposed to the 7 percent of just over two years ago.

Tough times come and go but when times look as if they are improving it is prudent to put a little away rather than over-spending on luxuries during the festive season!