Credit Cards Leading Fewer People Into Debt

4th October 2012

The British Banking Association has reported that consumers are currently reluctant to take on additional debts. The total owed on personal loans is now around 50% of the level reached at the end of 2007. Credit card customers are repaying more than they are borrowing. The total owed on credit cards has however increased a little due to the addition of interest on pre-existing card balances.

You might feel that the declining use of credit cards and personal loans would work through to fewer people seeking debt advice or starting Scottish trust deeds. Indeed, this now appears to be the case. The debt charity CCCS has hearing from fewer people with debt problems. The average debts of those that contact CCCS have also reduced. In the first six months of 2012 around 76,000 people contacted CCCS. In 2010 the equivalent period saw around 85,000 such contacts.

One Scottish trust deed website has recently produced a press release forecasting that the next set of quarterly insolvency statistics for Scotland will show an 18% reduction in the number of people signing trust deeds. The official figures should be confirmed by the Accountant in Bankruptcy later this month. Reduced levels of credit card and personal loan usage could be one causal factor.

Our blog also pointed to the fact that lower levels of debt (than was previously the case) are now causing debt problems. CCCS also pointed to this trend today in their announcement. They say that people are now looking for advice when their debts reach £10,000 but that this figure was £13,000 only a couple of years ago. Falling disposable income may be a factor in this; there is now simply less money spare to repay debt for the average household.

There may however be a new credit phenomenon building up a further wave of debt problems in the future. There has been an explosion in the use of payday loans and other short-term expensive credit in recent years. As it has become harder to obtain mainstream credit (in the form of bank loans or credit cards) increasing numbers of people have turned to this type of expensive “short-term” credit. As the interest costs are so high, people can easily be tipped into an unaffordable financial position with a lower overall debt burden than used to be the case.

Credit card usage is certainly falling, and this development appears to be reducing the number of people that must resort to the use of Scottish trust deeds today. However the growth of new hyper-expensive easy credit seems likely to produce a further wave of financial distress and trust deeds in the future.

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