2007 was a bad year for consumer debt. We passed the symbolic trillion pound mark three years ago, and were shamed again as our debt overtook our GDP last summer, and that was before the busiest borrowing time of the year.
Christmas is the worst time for accruing debt, where one in three of us go into the red on festive bingeing. One in ten britons was still paying off the cost of Christmas 06 at the beginning of December 07, at an average seasonal credit card debt of £660. The average debt of a UK citizen is now at £8920, excluding mortgages. According to Credit Action we now collectively we owe £1391 billion, a figure so huge that it increases by a million every four minutes.
There has been a lot of talk of the ‘credit crunch’ in recent months, as banks have been reluctant to lend to each other after a cash crisis in the American mortgage market. One of the results of this is that many banks and lenders have a shortage of money themselves. This includes the credit card companies, who of course needed the funds to bankroll our Christmas shopping. After all, if you bought anything with your credit card, the credit card company paid for it there and then, so that you can then pay them back at your leisure.
If the credit card companies don’t have the funds, and banks won’t lend to them, what’s the best way of raising that cash? To change the terms of the cards, of course.
There are over 300 different credit cards on the market in the UK. In September and October there were 125 different fee and rate increases on these cards, according to Money Facts. The average interest is now 23%.
The credit crisis in our banking system means borrowing is more expensive than ever. Banks and lenders will pass on the extra expense to the borrower wherever they can. Credit cards never have been a good idea, but they are a worse option now than ever.
There has never been a better time to cut up your credit cards.