Credit Card Debts to Sweep Britain
27 July 2009 - Xenia Rainey (Which Way To Pay)

5.gif

Credit Card Debts to Sweep Britain

When will it be over?  Not today, as a new wave of fear sweeps Europe – and this one isn’t related to swine. The latest worry for the continent is based around credit cards.  What was the main concern for the USA is now to be a factor over here as credit card lenders brace themselves for huge defaults.

In the USA, the credit card crisis caused billions of dollars of losses for banks and this same problem is now expected to hits its European counterparts – with the UK in the lead.

As Europe’s biggest nation of credit card borrowers, the UK is set to make losses which nearly rival those felt in the US already.  The IMF has already estimated that US consumer debt which will turn bad will be about 14 per cent of the $1.9 billion. 

In the UK, it is said that around 7 per cent of the $2.5 billion of consumer debts will be lost.  Rising unemployment is a key factor that affects consumer debt – in the US, credit card losses have even taken over unemployment.  This is a very unusual occurrence for a country to be in.

Credit card telephone helplines in the UK are reporting that the number of calls are on the rise and show no sign of slowing down.  Consumers are turning to charities to air worries about credit cards, loans and arrears – the number of calls have doubled since 2008.

Consumers who were ‘living on credit’ in the last few years are now seeing their debts pile up.  One couple from Stoke on Trent were relying on store cards, credit cards and personal loans to fund their modest though fairly comfortable lifestyle. 

Now, say the couple, the bank is closing in on them as it tries to regain losses.  Overdrafts get closed down and debts pile up – meaning years of repayments.

But while this situation has been a factor for at least a year and a half in the US, over in the UK it is just beginning.  While banks have been preparing for the worst in light of the recession, and have been expecting to make losses, some are wondering whether there has been enough thought given to the big consumer debt problem.  After all, what will those consumer loan books do to profits now?

Once again, the arguments are clashing as to the future of the recession.  What is yet to come is a much-debated topic and while the experts theorise, it is the consumers who are left in the dark with interest charge hikes on cards as lenders try to offset default risk.