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Inflexible friends and plastic assets, why money isn't buying love anymore
It would appear that even though their “friends” aren’t as flexible as they used to be, consumers are still stretching their credit cards beyond the comfort zone.
The vicious circle of debt manipulation involving banks, consumers and commercial credit companies is putting consumer spending under strain, as funds begin to dry up. In May 2005, the Financial Times reported the accusation that banks were fuelling personal debt problem by repeatedly offering debt-ridden customers loans they were unable to repay.
As the personal debt increases by 1 million every four minutes, credit card spending habits still seem to be spiralling out of control. According to Credit Action, nearly 66% of the adult population have a credit card, with multiple card holding becoming a growing phenomenon. More than 60% of card holders possess at least two cards, with 10% holding at least five cards. There has also been a significant rise in the number of personal bankruptcies. In the year up to March 2005, 37,886 people were made bankrupt, a 30% increase on the previous year.
Credit Action reported that some credit card companies reduced their minimum repayments from 3% to 2% last month, which has been seen by some as irresponsible. To put this into perspective, a 3000 credit card balance at 17.9% APR would now take more than 40 years to repay if the minimum repayment of 2% is paid each month, in comparison to 19 years with the 3% minimum repayment. Barclays even warned of falling profits for the Barclaycard credit card division last month, as more customers missed repayments and bad debtors increased.
For those consumers with regular incomes and strong credit records, credit cards with APRs as low as 6.9% are available, that’s less than half the standard APR most consumers have to pay on the cards in their wallet. By just using a variety of online personal finance tools, consumers can save themselves considerable grief by undertaking some financial homework.
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