UK carrying "ball and chain" of consumer debt

08/09/2009

Consumers need to develop a plan for dealing with high interest outgoings such as credit card balances if the UK economy is to avoid being dragged down by a "ball and chain" of debt, it has been claimed.

With total personal debt standing at £1,457 billion at the end of July, Peter Sargent of insolvency trade body R3 warned that this heavy burden could see Britain left behind as countries like France and Germany recover from the global downturn.

People therefore need to "stop borrowing money right now" and start targeting their outgoings with the highest rates of interest.

He added that with interest rates at record lows, many Brits are making the error of paying off their mortgage while increasing their credit card borrowing, despite credit card debt being more expensive to service.

Figures published by the Bank of England show that overall lending to individuals fell by £600 million in July 2009, although net credit card lending rose by around £92 million.

EuroDebt director Kevin Still said: "Tackling credit card debts can be easier said than done for those already overcommitted or struggling to meet contractual payments. Converting unsecured debt into secured debt needs to be undertaken with great caution and professional advice.

"It is often the case that the highest interest rate credit lines represent the few available sources of additional credit and most credit card issuers have tightened their criteria for balance transfers, increased the charges for these transactions and shortened the interest-free period.

"Using surplus created from cheaper mortgage payments to target high interest credit accounts can be very sensible. Establishing a buffer to ensure that minimum contractual payments can be met for a number of months without a break may be more important than paying a lump sum off the account.

"If there is no surplus and no disposable income then it is time to take debt advice and avoid any further unsecured borrowing. debt solutions like a Debt Management Plan may then be applicable to establish an affordable and fair repayment payment arrangement with your creditors that may need to run for a number of years."

Tags; Debt Management and Banking, Young Family Finances, Credit Card Lifestyle,

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