Credit Card Woes Mount for Britons

Britain’s rising debt crisis means different things to different people. For leaders, pressure continues to mount, seeking solutions for the problem, amounting to hundreds of billions of pounds. But for citizens, the problem is more intimate, calling for family budget relief. At the heart of the dilemma, rising consumer credit obligations are on a potentially dangerous trajectory, growing toward levels similar to what was seen prior to the global financial crisis.

Consumer Credit Leads the Way

Debt mounts in many ways, from mortgages and short-term no credit check financing alternatives, to car funding and standard payday loans. Within the burgeoning debt plaguing the UK, consumer credit is among the most problematic sources of rising personal debt. Credit cards balances, in particular, continue to challenge many UK families.

Taking inflation into account, household consumer debt has risen by 7 per cent since 2012. To the detriment of British workers and for the national economy as a whole, wages have only ticked upward by .7 per cent, during the same period. With rising costs and lagging wages putting pressure on families, many turn to credit cards to make purchases they’d otherwise cover with their monthly salaries.

Mortgage interest rates have remained low, but other troubling finance trends continue to thwart the personal financial stability families need to balance their household cash flow. Falling behind on tax obligations is another symptom undermining personal financial health among Britons. Credit cards, overdrafts, and second mortgages are helping consumers keep up with their financial obligations, but at what cost?

Financial health is measured in many ways, but unsecured consumer debt provides one of the most meaningful metrics for comparing conditions and predicting financial outcomes. As debt has risen over the past 5 years, unsecured funding from sources such as credit cards, overdrafts, store cards, and loans has grown by 19 per cent. Taking inflation into account, the cumulative unsecured debt has not been seen at this level since the middle of 2010.

A harbinger of bad things to come, unsecured debt in 2007 had risen to forty-five per cent of household income. As economies fell apart around the world, Britons reversed the growing debt trend, lowering the amount of household debt to an average of thirty-five per cent by 2012. Since then, a negative rebound has drawn debtors back to risky territory. Many have resumed carrying balances, rather than wiping credit debt each month. The resulting rise, if allowed to continue, may grow to a staggering forty-seven per cent by 2021, according to the Office for Budget Responsibility. In the last year alone, Bank of England figures show an increase of nearly 5 per cent in unsecured consumer credit debt.

As more and more Britons turn to credit cards and other forms of financing, British GDP growth relies on borrowed money. The unsustainable condition is forecast to get worse in the future, harming both individual and national financial recovery.

Troubling Credit Card Practices

In one alarming, counterproductive trend, credit companies appear to be targeting consumers with existing debt difficulties. Citizens Advice indicates as many as 18 per cent of cardholders with hefty balances have had their credit limits raised without even asking, compared to a much lower portion of those without high outstanding balances. The fact is, according to the Financial Conduct Authority, those in persistent debt are profitable to credit card companies, so credit providers do little to help them recover from their financial problems. On the contrary, by enabling them with higher credit limits, the industry pours fuel on the fire, worsening conditions across the country.

The number of credit card transaction rose by 12 per cent during the first half of the year, representing the highest annual rate seen since 2008. And the share of overall spending value has also risen, further illustrating the negative trajectory impacting consumer borrowers.

Responsible use of revolving credit is a natural feature of healthy personal finances. But when the scales tip in the direction of excessive personal debt, credit card use can become problematic – particularly when credit card companies take an opportunistic approach, enabling their customers to slide deeper into financial trouble. Until this form of irresponsible lending is put in check, Britons will continue to struggle with mounting credit card balances.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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