Credit Card Bonanza Creates Crippling Debt

Attitudes to debt have certainly changed in the last fifty years or so.  For most of the twentieth century, getting into debt was still widely regarded as being slightly shameful and getting a loan from a bank was like getting blood from a stone.

While bank managers can no longer behave like Mr Mainwaring from Dad’s Army lenders still need to have some responsibility for checking that borrowers can afford to repay them.  New research by Citizens Advice suggests that poor affordability checks by some credit card providers are making people’s financial situation worse.

These findings are included in a report recently published by Citizens Advice called ‘Stuck in Debt’.  The report comes at a time when the Bank of England has issued a warning to lenders about how they are granting credit to consumers and borrowing has risen to over £200 billion with over a third of this – £67 billion – being on credit cards.

The research found that:

  1. Nearly one in five (18%) of credit cardholders struggling with debt had their card limit raised without their having asked for an increase.  This compares with 12% of cardholders who were not struggling with debt whose limit was increased unilaterally by lenders.
  2. People with credit card debts are more likely to get into long term debt than those with personal loans.  While 72% of people struggling with the burden of a personal loan or loans were able to reduce their debt over two years, only 60% of people struggling with credit card debt were able to do the same.

Citizens Advice believes that irresponsible offers of further credit are pushing people into long term debt cycles and that unasked for increases in credit card limits should be banned.  It is also calling on the regulator (the FCA) to ensure lenders take into account people’s whole financial and personal situation before agreeing further credit. Banning firms from raising existing customers’ credit limits without seeking their express permission first would help people take more control over their finances.

While the FCA has announced a range of proposals to help those already in long term credit card debt, Citizens Advice believes these measures need to go further.  Too many people are spending more on credit card interest charges than paying off the total amount they owe.  Citizens Advice says lenders should contact customers to discuss plans for repaying the debt, who have been in this situation for   no more than two years (as an absolute maximum) rather than the three years proposed by the FCA.

If you have a problem keeping up with your credit card debt remember that Citizens Advice helped nearly 66,000 people with over 140,000 credit card debt problems in the last year and can probably help you.  So, if you require help from Citizens Advice, or need information and advice on Debt, Benefits, Work, Consumer Issues, Relationships, Housing, Law and Rights, Education, Discrimination, Tax and Healthcare you can:

–                call 0344 848 7969 to speak to an assessor or make an appointment to talk to an adviser face-to face. (calls to this service cost the same as calling 01 and 02 numbers included as part of a mobile allowance or a landline call package.

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