1st May '08 - UK Faces Credit Card Bills of £32 Billion
UK consumers spent a record sum on credit and debit cards in the final three months of 2007 as borrowers increasingly used plastic to pay their household expenses, racking up the second highest sum in history.
Credit and debit card spending rose to £91.5 billion, up from £86.6 billion in the three months to last September. In total, credit card debt increased by £300 million in 2007.
Analysts are blaming the hike in spending on cheap credit card deals and the fact that they are readily and easily available and have warned that people using their credit cards to meet their monthly bills is the first sign of a spiral of debt trouble.
The problem with using credit cards for everyday bill is that repayments of credit card debts are calculated by comparing the total amount of repayments to the total sums lent during the same period. This means you are paying back more than you have actually spent with the added cost of interest.
The concern is that as people find their cash or current account balances dwindling, then they may start to look towards their credit cards to meet everyday family shopping costs. Some people may even be tempted to draw out cash of their credit card in order to then use this same money to make the minimum required payment of their credit card.
Although some of the increased spending on food in December can be attributed to higher prices, recent figures show that the cost of food and drink has risen by only about 6 per cent in the past year.
The result of the increased use of credit cards and the associated increased credit card debt is that charities who advise people about credit card debt are now experiencing an increased number of telephone calls. This was particularly the case in mid January.
As a result, people are repaying more on their credit cards than they were five years ago.
But everyone knows that spending on credit cards is easy and that fact has always been reflected by the UK’s growing economy and despite the amount of debt people acquire using them, credit cards are not the enemy.
Many credit card companies offer new cards with zero per cent interest introductory rates on balance transfers. These offers might actually help to alleviate debt through lowering interest payments over the period of the zero rate offer. However you are strongly advised to do the maths first. When considering balance transfers, don’t forget to read the fine print. The zero per cent introductory rates advertised will not last forever so take note of the duration. Also take into account the balance transfer fee and the credit card charges. A small charge can be offset by a longer zero per cent rate, so it pays to do the maths.
Also keep in mind the most common mistakes people make when using credit cards such as withdrawing cash, using credit card cheques, overseas charges (conversion fees) and long-term borrowing. Also be mindful of the fact that if you do not pay your credit card bills on time it can have a detrimental affect on your credit rating.
This debt help article has been written by Charles Wells.
This article does not represent ‘financial advice’ as each person's individual requirements will be unique to their own personal needs. If there is something in the article which you may wish to rely on, ensure you check those details with the person or company with whom you arrange financial services.
The views in this article represent those of the author and not those of Netbasic Limited.
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