UK consumers curb card spending

SUNDAY, AUGUST 06, 2006

According to figures from the British Bankers' Association (BBA), UK consumers reined in their credit card debts during May in a bid to deal with their debt problems. It seems the attitude of spend today; pay tomorrow still prevails in the UK though. While the amount of credit card debt fell, there was a surge in other unsecured borrowing as consumers switched to personal loans and overdrafts to finance their spending.

The BBA said that credit card spending still rose by 16% compared with the previous month, but the net levels of borrowing fell by £250 million as repayments exceed spending.

At the same time, levels of other unsecured debt such as overdrafts and loans increased by £700 million during May; double the average over the previous six months.

There were suggestions that the surge in unsecured borrowing was a "one-off" due to purchases related to the World Cup, such as wide screen televisions for example.

However, there are worries that personal debt levels could soon reach crisis point in the UK. Increases in taxes and energy costs haven’t necessarily been matched by rises in individual income. At the same time, unemployment is rising. Although the picture of the UK economy is far from gloomy, base rate rises in the next few months could leave many individuals struggling to cope with their debts.

A week before the BBA report was released the Consumer Credit Counselling Service reported increased numbers of people with extreme debts in excess of £100,000. It's thought that there are a million people in the UK who are struggling to repay their unsecured debt and could face insolvency. Many of these have already sought debt advice from an Insolvency Practitioner and were considering bankruptcy or taking out an IVA because they could no longer cope with their debt problems.