The Financial Conduct Authority has warned that 1.4 million Brits are only managing to make the minimum payments on credit card balances. The regulator has captured data which shows that this worrying trend has been building for the last 3 years, and it has flagged up the potential risk for the UK to re-enter problematic levels of consumer debt.
Inappropriate use of credit cards
Credit cards are designed to provide short term borrowing cover rather than become long-term financial crutches, as the interest rates tend to be more expensive than personal loans.
The FCA also found that minimal incentives existed for credit card issuers to get involved and to support their customers with efforts to extract themselves from long term and persistent card debts. As the customers who make just the monthly minimum payment are charged the most interest over time, they represent the greatest profits for the issuing company.
For consumers with problematic, ongoing debt, other schemes such as IVA and debt repayment plans can be more suitable, from experts in IVA advice.
Card companies should be doing more
A spokesman for the FCA said that credit card firms should be obliged to do more, if not taking steps voluntarily, to help customers stuck in the minimum repayment cycle, to start increasing their payments whenever possible, to clear the debt.
He said that the FCA had ongoing concerns about levels of national credit card debt which were both potentially problematic and persistent. The organisation is continuing to partner with the lending industry and with consumer groups to embed changes that help consumers to gain a higher level of personal financial control.
The report found that nearly 9pc of credit cards used in January of last year would now need over a decade of repayments to fully clear the balance, assuming that only minimum payments were made and that no additional borrowing was made on the card.
Equally, 1.6 million customers now have debts across more than one card. It wants to see measures installed to help people to develop budgeting skills and find ways to repay their balances faster. Without such measures in place, the UK potentially faces a ticking time bomb for its national personal debt levels, which could become more serious if the economy does falter.