The changing face of credit card problems
- Published on Wednesday, 17 October 2012 12:26
- Written by Delroy Corinaldi
National debt charity Consumer Credit Counselling Service (CCCS) is seeing a marked decline in problem credit card debt
The number of people seeking our help with their credit card debt is decreasing, and has gone down from the peak of 170,363 in 2009 to 161,451 in 2010, and 149,475 in 2011.
While 76,368 people have sought its help with their credit card debt in the first half of 2012, this is a decline on 80,971 for the first half of 2011, and 85,315 for the first half of 2010.
Although this is good news, another trend that CCCS is seeing with regard to credit card debt is not so positive.
The level at which credit card debt becomes problematic has dropped, with the average credit card debt for those seeking CCCS's help going down by almost three thousand pounds, from £13,196 in 2009 to £10,517 in 2012.
Causes of decline
So, what is behind this changing credit card debt landscape?
It is likely to be a range of factors.
A significant reason for this decline is that people are paying down their debt. Low interest rates mean that it makes sense for people to repay what they owe instead of putting any spare money into savings.
Another driver is that this type of credit is less accessible than it was several years ago.
A further reason is that people may be replacing credit card debt with overdraft debt. That is what seems to be happening with those who are seeking CCCS's help.
As overall debt levels are declining, especially credit card debt, the charity has seen a sharp rise in overdraft debt. The average overdraft debt of a CCCS client has gone up from £1,748 in 2007 to £2,082 in 2012.
The number of people seeking its help with their overdraft debt has risen sharply, from 58,069 in 2007 to 134,540 in 2011. It has already been surpassed this year, with 69,663 people seeking its help with their overdraft debt in the first half of 2012.
While CCCS welcomes the decline in people struggling with their credit cards, it is concerned about some of the changes to how people are dealing with their credit card debt.
CCCS is also concerned that some people are putting more debt on high cost credit, this is a problem that will be exacerbated by rising living costs and could lead some into higher levels of debt.
It is very concerned that credit card debt is becoming problematic at a lower threshold than before. This highlights the impact of the economic downturn on household budgets, how people are struggling to keep up with their debt repayments despite having less credit card debt to manage.
Another worrying trend is the rise in overdraft debt as people tend to view what they owe on their overdrafts differently to other types of debt such as credit card or personal loan. It is not unusual for those contacting the charity for help to not calculate what they owe on their overdraft as part of their overall debt.
The problem with this is that it makes it easier for them to use their overdraft for day to day expenses, temporarily masking any problems they may be having with making ends meet.
This is not sustainable which is why rising numbers of people are struggling with the rising amounts they owe on their overdrafts.
The charity is urges people to look at how they are using their overdrafts and seek help if they have concerns about how they will repay it.