Earlier this year the Bank of England (BoE) and the Financial Conduct Authority (FCA) found that 89% of credit card debt was held by consumers who were also in debt two years ago. The analysis showed people were shifting their debts from one lender to another to take advantage of 0% balance deals.
Consumers are trapped in credit card debt longer than previously thought.
The Bank had thought that consumers had been paying off their original debts but the reality shows that consumers are trapped in credit card debt for longer than previously thought.
The news comes as unsecured borrowing such as credit cards, personal loans, car loans and overdrafts has reached levels unseen since the financial crisis.
Consumers were remaining in debt for longer, just taking their debts forward to give them more time to pay them down. The Bank of England had believed that credit cards were paid off more quickly, particularly in relation to mortgages.
Just two years ago Nine out of every £10 of outstanding credit card debt was owed by consumers who were also in the red two years earlier, according to the study.
Borrowing continues to rise.
There has been no let-up in borrowing since then. The rapid growth in personal unsecured borrowing is now rising at almost five times the rate of growth in UK pay. Households are finding themselves increasingly squeezed by meagre earnings growth and rising inflation. [As] the weak pound after the Brexit vote pushes up the cost of imported goods.
Bank data shows personal debts have risen to the highest level since before the credit crunch, reaching more than £200bn. With credit cards accounting for more than £70bn of the total.
This year households have also faced stagnant real earnings growth. This has pushed many households into further debt just to maintain their living standards. Many are using credit cards, not for the luxuries in life, but to pay essential day to day bills and costs.
Writing on the Bank Underground blog, where staff from the BoE can air their views in public – the officials said:
“Although a consumer may clear their debt on one credit product, it is not uncommon for them to remain in debt as they transfer balances, take out new credit products or draw down on existing credit lines, such as credit cards.”
Hidden debt thought to be £19bn.
Personal debt is on the increase. New figures show the amount of ‘hidden debt’ to be around £19bn.
According to a statement from CAB, British households owe almost £19bn in utility bills, missed council tax payments and overpaid benefits. According to these figures, it reveals a hidden mountain of debt facing the country.
This concerns the Bank of England. Banks are being forced to beef up their financial reserves to protect against any losses.
It warned against reckless lending standards emerging after a period of economic stability since the financial crisis. Saying Britain’s banks could incur £30bn of losses if interest rates and unemployment rose sharply.
One factor in the study was more hopeful. Offering some comfort to the Bank. The findings show that the growth in consumer credit had not been driven by consumers with poor credit scores. This is known in the finance industry as “subprime” borrowers. This would help to suggest that the growth in consumer credit has been less risky than feared.
Getting help with debt problems is ‘vital.’
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