Credit Card Debt

In the last 12 years, UK personal debt has more than tripled with it currently standing in excess of £1.25 trillion. According to Credit Action, the average UK household has debts of £8765 (excluding mortgages) and £52,811 including mortgages. On average, this equates to every adult in the UK owing £27180 inclusive of mortgages.

The increased ease of obtaining credit is much to blame for this massive increase in personal debt with the combined value of transactions made on credit, debit, charge and store cards exceeding £470 billion in 2005. According to Credit Action, in November of 2006, credit card debt was around £54.9 billion.

One of the major problems with these forms of credit is the interest rates the credit providers charge. The average interest rate on credit card lending is around 17.02% with 3.4 million credit card holders regularly only making the minimum payment thus plunging the card owner in to further credit card debt and even defaults if payments are missed.

With banks and finance companies making credit cards so easily obtainable (1.26bn credit card and loan offers were made via junk mail in 2005), every adult in the UK has 4 plastic cards on average. And the ease with which transactions can be made with these cards further exacerbates the credit card debt problem. On average, around 300 plastic transactions take place every second!

Credit card debt can be solved however…

• Consumers firstly need to realise that they are not getting themselves in credit (as the name suggests) but rather in debt. Think of plastic cards as ‘debt cards’.
• Secondly, if you do have cards, consolidate them into one with a better interest rate. Often credit cards have special offers where interest is ‘paused’ for a period of time.
• Thirdly, consumers need to stop spending on the card. If one continues to spend, then there is no hope of actually paying off the debt.
• Consumers should pay more than the minimum amount each month. This way, the debt will be paid off quicker and the interest charges that can be incurred will not span over a longer term thus adding additional debt.
• If consumers have serious debt problems, there are companies that can help. Financial management plans can freeze all interest charges and consolidate monthly payments into one lower monthly repayment. Often, if the debt is significant (in excess of £15,000), up to 85% of the credit card debt (or debts in total including any unsecured debt – loans etc) can be legally written off.

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• March 2010
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