Credit card spending rises as households try and keep on top of payments
According to a recent report there has been a sharp rise in credit card spending, much of which has been attributed to households having to rely on credit in order to meet their day to day expenses or pay their bills.
Consumers in the UK have had to put up with a number of payment increases over recent months, and whilst interest rates have come down for a third time since December, other bills and costs have risen, including energy bills, water bills, petrol, and food.
As a result of these rising costs many people are struggling to make ends meet, and in order to try and avoid defaulting on repayments and bills, as well as being able to afford living costs, many have turned to their credit cards, resulting in credit card spending nearly trebling to £350 million in the past month.
Experts have warned that using a credit card to find day to day expenses or pay bills can be a slippery slope, as consumers will quickly find that they no longer have the credit that they need and will have to look for an alternative – in addition to paying off the credit card debt that they have accrued.
However, whilst industry experts have said that it is not a good idea to use your card regularly to fund living costs and bills they have also recognised that this may be necessary from time to time.
In these cases experts have recommended that consumers find the most affordable credit card deal so that they minimise on the amount that has to be repaid. Borrowers should carefully compare credit card deals in order to find the most affordable one, but should bear in mind the increased difficulties in getting finance due to tight credit conditions.
Credit card interest rates have been rising
Over recent months the Bank of England has reduced the base interest rate three times, with the three 0.25% cuts taking the base rate from 5.75% to 5% between December of last year and April of this year.
Whilst this should spell good news for borrowers reports have shown that lenders are continuing to raise their interest rates as a result of the effects of the credit crunch, which means that many borrowers may not be any better off despite the base rate cuts.
Costs have gone up in many areas of borrowing, such as loans, mortgages, and credit cards, all of which have had an adverse effect on consumers’ affordability and a knock on effect on the economy.
The research shows that the average credit card interest rate has risen by more than half a percent in the last six months despite the 0.75% cuts that have been applied over the past few months.
In addition to the average credit card interest rate going up – rising to an average 17.12% - the average balance transfer rate has also risen, going up by around 0.83% to 15.95%.
Experts have stated that borrowers are really having to pay the price of the global credit crunch by paying increased fees on their borrowing even though the base rate has been falling.
One industry official said: “Most of us would normally seek out a new zero per cent deal to tide us over the bad times, but with lenders playing a cautious game, getting one of those cards is more difficult than it used to be. This means more of us will have to use our current credit card and if the 0 percent deal has expired, you’ll be borrowing money at a rate of around 16 percent; be careful what you spend on the plastic because the interest will soon mount up.”
More than half of credit card customers avoid interest
According to recent research by fairinvestment.co.uk more than 50% of credit card customers in the UK have been able to avoid paying costly interest rate charges on their credit card balances by simply paying off their balance in full each month.
Experts have stated that customers that use their credit cards in this way can not only avoid paying expensive rates of interest on their borrowing, but can also enjoy making a little back from the credit card firm.
Many customers that repay their balance in full each month have rewards based credit cards such as air miles cards, cash back cards, retail rewards cards, travel rewards cards, and more.
By having rewards based credit cards these consumers are able to accrue rewards by spending on their card, yet they are charged no interest for spending on the card because they are repaying the balance in full each month.
An official involved with the study stated: “With the encroaching credit crunch being felt by consumers through the price of credit and the bills that come through their front door, it is uplifting to see that more than half of credit card customers can still afford to clear their balance each month and are not relying on their credit card for day-to-day essentials, getting further and further into debt.”
None of the consumers that were polled said that they had consolidated their credit card debts with a loan.
The official from fairinvestment.co.uk said: “The fact that we had no respondents who said that they took out a personal loan to pay off their credit card balance is a strong indication that the credit crunch is having an affect on the availability of credit to consumers, just as it is for people trying to get a good mortgage deal.”
Tories launch attack on credit card providers
Officials from the Conservative Party have recently launched an attack on credit card providers, accusing them of luring consumers into borrowing money and then chewing them up and spitting them out when they run into difficulties with their finances and can no longer afford to keep up with repayments.
The level of personal debt in the UK has been of concern for some time, and credit card debt is through to make up a large chunk of the debt mountain.
The Shadow Business Secretary, Alan Duncan, has accused credit card providers of luring customers into getting into debt by offering deals such as 0% offers, but says that when the special deals come to an end and customers can no longer afford to pay the crippling interest payments the credit card companies lose interest in the client and simply ’spit them out’. He slated credit card providers for adding to an already worrying mountain of personal debt in the UK.
He told a newspaper that lenders needed to look at the human misery that could be caused by consumers getting themselves into unmanageable levels of debt.
He added that it was not acceptable practice, and that it was classed more as ‘corporate irresponsibility’. He also stated that this would all change in the event that the Tories get back into power.
Despite the attack from Duncan many credit card providers have been cutting right back on their lending levels, and have increased stringency with regards to who they will lend to, as have other lenders such as mortgage and loan providers.
This is due to the chaos caused by the global credit crunch, as well as by spiralling bad debt levels that are affecting the profits of credit card providers.
Increased warranties for Nationwide credit card customers
Earlier this month the Nationwide Building Society offered some good news to credit card customers, revealing that they would be able to enjoy extended warranties on a range of products purchased on the card without having to pay any addition fees or charges.
The extended warranties come free of charge, and a range of products will be covered according to the announcement made earlier this month by Nationwide officials.
A number of credit cards offer extended warranties on purchases, and consumers are urged to familiarise themselves with the details of any extended warranties in order to ensure that they know what is and isn’t covered.
It is also important for consumers to make sure that they register the relevant items so that the extended warranties can be put into place.
With the extended warranty offer from Nationwide customers only have to register the purchase that they make in order to enjoy the additional protection. With the manufacturer warranty coupled with the additional warranty offered by Nationwide means that consumers can enjoy up to three years protection for free on some items.
Amongst the items on which the additional warranty is available are DAB radios, camcorders and DVD players with hard drives, home cinema systems, freeview boxes, and other electrical gadgets.
One official from the Nationwide said: “Any Nationwide credit cardholder who uses their credit card to purchase an electrical item for use within their home can receive a year’s extended warranty cover free of charge - simply by registering it. We have recently improved the range of items that can be covered, to include newer technologies such IPODS, MP3 and MP4 players, Home Cinema Systems and Freeview boxes - which previously weren’t covered.”