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Bad credit card debts to increase
Bad debts in the credit card sector are set to soar to 9%, according to accountancy firm PricewaterhouseCoopers (PwC). The figure currently stands at approximately 6%. Debts worth £3.2bn were written off last year by card companies: it has been predicted that these will increase significantly as a result of rising unemployment and pay freezes. As bad debts increase, the borrowing rates on cards may also soar.
This announcement comes despite consumers being much less willing to take on more unsecured debt: credit card borrowing has fallen 3% in the past year, and the total number of credit cards in circulation has also fallen by 8%. Lenders have also imposed new restrictions: many card issuers are only seeking to lend to existing customers with a trusted credit history.
If bad debts rise as predicted, consumers will be faced with the unhappy prospect of a reduction in credit availability, a reduction in product choice and a general increase in charges and interest. It has also been suggested that annual fees could become a standard feature on credit cards. Debt consolidation options are being considered by many consumers in advance of these possible price hikes.
UK debt levels are high when compared with the rest of Europe: the total average debt for a British household is approximately £60,000: £50,000 of secured debts and £10,000 of unsecured debts.
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