thedebtblog.co.uk

Standard and Poor a UK credit agency say that increasing numbers of people in the UK are trying to get out of paying their credit card debts by taking out Individual Voluntary Arrangements, more commonly known by the initials IVA’s.

When a credit card customer tries to get out of paying their credit card debt it’s called a ‘charge-off’ - which is repayments and interest that the credit card company think they will not be able to recover. The number of Charge-offs rose from 6.6 per cent at the end of March 2008, to 6.9 per cent by the end of June 2008.

The credit card industry had seen a sharp rise in IVA applications back in 2005 as debt management companies began springing up all over the UK. These companies began advertising heavily promising to write off huge percentages of debts for their customers. As such credit card companies in the UK have had 3 years head start on mortgage and loan companies now feeling the strain of the credit crunch.

Since 2005 credit card interest rates have risen and the lenders have tightened their lending criteria making it more diffcult for non credit worthy customers to open an account.

Even though there is now great public awareness of the credit crunch and managing finances it looks like UK consumers are continuing to spend on their credit cards. June 2008 saw a growth rate on credit card spending of 7.1 per cent, the highest growth rate in 2 years.

You might wonder why or how the credit crunch can continue to affect the everyday finances of people in UK? Don’t forget it’s not just the fact that the cost of living continues to soar; lenders are now putting limits on the level of credit we have available.

Different aspects of the cost of living have increased, even month on month, things like utility bills food resturants and cafes, alcohol and even package holiday costs have increased from April 2008 compared to March 2008. This is because of the rising external costs to the companies operating in these goods and services.

It would also make sense for loan and mortgage lenders to tighten their lending criteria, and we’ve seen that over the first few months of spring lenders have indeed made it more difficult for people to get hold of credit. I think this is a good thing in the light of mortgages and loans including secured loans. Something like 60 per cent of people who consolidate their debts with a loan will then use additional loans and other forms of credit to, perhaps, fund a lifestyle they simply cannot afford. It is time for people to wake up and budget within their means.

However, what I do not agree with is the recent 2.5 million or so credit card customers who’ve had restrictions put on their accounts because of the credit crunch! Forgive me for thinking this way but wasn’t it the banks that got us into the credit crunch mess in the first place? If they had not lent money irresponsibly to people who could not afford the repayments this would never have happened?…

Credit card companies have cut spending limits, issued annual fees and even closed some accounts. But what makes this even more insulting is that many of these customers are ones who use their credit card occasionally and generally pay off the balance in full. i.e the kind of customer that doesn’t really make any profit for the banks! Suprise, suprise, it’s all boiled down to money, or should I say, profit for the banks. As if the banks profit margins weren’t big enough already, it’s the average, every day customers who are now having to pay for their mistakes.

Do you simply choose to ignore your credit card bill? Large numbers of people in the UK admit to this alarming habit, but perhaps even more conearning is that these people also live in the false hope that their credit card bill will magically disappear! I cannot believe that people are so unresponsible with their spending and utlimately their debts.

Treating debt like this is a sure fire way to land yourself in very hot water. Lenders are tightening lending criteria so it’s becomming muich harder to get a loan.

People who ignore their credit card bills and then think applying for a loan to consolidate debts may find themselves with a declined loan application; especially if they have charges and late payments damaging their credit rating from previously ignored credit card bills.

There are, however, around 60 per cent of credit card customers doing the right thing and clearing their credit card bills in full, every month. With the credit crunch being felt by consumers through the recent interest rate rises on credit, particularly loan interest rates, and the bills that land on their doormats. It is encouraging to see that 60 per cent of credit card customers can still afford to repay their balance in full each month. It is essential that people do not rely on their credit card for every day spending because this will only lead to further debt problems.

You should seek professional advice if you’re worried about keeping up with repayments on loans, credit cards, your mortgage or any other form of borrowing.

A staggering 3.2 million of us in the UK own 5 or more credit cards. I suppose this is hardly surprising given the last few years in the UK financial services industry, credit has been made far too easily available to people who either don’t fully understand the financial products they’ve applied for or simply couldn’t afford to make their repayments on mortgages, loans and credit cards.

Don’t get me wrong there is nothing wrong with having 5 credit cards or even a couple of loans and a mortgage, it all boils down to how these debts are managed. If you can happily move balances from one credit card to another or pay off your credit card balances with a loan then as long as you can honestly afford to make substantial repayments, not just the minimum amounts, you have nothing to worry about.

For the people who have 5 or more forms of credit which they use to pay for monthly household bills or food shopping and cannot afford to repay these debts every month, you are in serious trouble. Struggling to keep up with repayments and still using credit to keep your monthly finances in order is a recipe for disaster and you should seriously consider seeking professional financial advice or debt advice.

The recent credit crunch and interest rate rises doesn’t seem to have put us off; with 28 per cent of people applying for more credit cards last year. Of the 28 per cent, 21 per cent applied for 1 credit card while 7 per cent applied for 2 or 3!

As I said credit cards aren’t all doom and gloom as long as you spend sensibly and do not use them to buy items you couldn’t afford previously. Because, in the long run, you can’t afford it!