Personal debt in the UK is alarmingly high; estimates suggest the average Brit has unsecured debts of more than double the European average.
Credit cards are the worst culprit. According to British Bankers’ Association figures two thirds of the 34 million credit cards in active use incur interest and the average balance is around £1,850.
Good news then that the Government (which has major debt problems of its own!) has today announced five new measures that it believes will save credit card users £296 million a year:
- Repayments will count against the highest rate debt first. And on new accounts the minimum monthly payment must cover at least interest, fees and charges, plus one per cent of the principal to encourage better repayment practice – so likely higher than current levels.
- Customers will have the right to reject future credit limit increases and may also reduce their limit at any time.
- The notice period for interest rate rises will double from 30 to 60 days. During this time consumers can reject the rise by closing the account and repaying the balance at the current rate.
- Customers at risk of financial difficulties will be given guidance on the consequences of paying back too little.
- Customers must receive an annual statement that allows for easy cost comparison with other providers.
These new measures will come into force on 1 February 2011, although lenders are encouraged to adopt them as soon as possible.
Will they make a difference? A little, hopefully, but the main problem remains a combination of irresponsible borrowing in the first place and financial hardship, the latter exacerbated by the economic downturn – personal insolvencies during 2009 were 25% higher than 2008 (roughly 1 in every 320 adults). I think it’ll take a lot of financial education and improved economic fortunes to solve these issues.
The other notable announcement is that from June 2010 everyone will be able to access their credit report online (via the 3 mains agencies) for a maximum of £2. At the moment the service is only available via post (unless you pay a small fortune for a ‘premium’ service).
Useful credit card calculators on this site include:
Credit Card Minimum Payment - How long will it take you to clear your balance making just the minimum monthly payment.
Credit Card Interest - How much interest might you end up paying on your credit card?