••• The International Writers Magazine: Money Matters

Debt-laden Brits face a crisis to soaring interest rates – City watchdog alerts them • Jimmy Simond

As per reports from the Financial Conduct Authority, British families have accumulated mammoth debts during the low-interest rate era and now as the interest rates threaten to rise, they are facing a crisis to pay them off. Although Bank of England Chief Mark Carney has announced that he has intentions to slowly and gradually increase the rates this will have an adverse impact on the Brit debtors. The FCA has reportedly said in its yearly Business Plan that while the interest rates are rising slowly, this too will have a detrimental impact on the consumers who are drowning in debt. You may click here to know about how personal loans can help bridge the gap temporarily but again, taking out loans can be reported to Experian (one of the 3 credit reporting agencies) and can lead to a ding on your credit score.

This can also predict that the households don’t have enough savings because low interest rates clearly mean that they didn’t get enough chance to save enough for their future. This is a one of the specific hazards in the UK which is commonly seen among the seniors or the baby boomers who have controlled resources with which they can pay for retirement. The FCA also said that due to the drop in interest rates, the growth in savings has reduced and this created concerns that the consumers won’t be able to save enough for their retirement.

Is consumer credit growing?

With lower costs of servicing household debt, there has been an incentive to borrow money as the costs required to build assets which can prop you up for retirement has also increased. At the same time, consumer credit is also growing at a yearly rate of 10 pc in recent years. This is a level which hasn’t been witnessed since the booming years post the financial crisis.

If you consider the mortgage market of UK, the rookie buyers have resorted to bigger loans which seem reasonable for them due to low rates of interest. The city watchdog which is led by Andrew Bailey has planned to prioritise high-cost credit so that such loans are easily offered (with a price-cap on rent to own loans) to the high-risk yet low-income borrowers. He also want to make it clear that overdrafts are credit or borrowing and not included in 'available funds'.

Debt on credit cards is growing at the fastest pace

Since the time before the financial crisis, it is now that debt on UK credit cards is growing at the fastest pace. More and more consumers are using their credit cards for making smaller and unnecessary purchases and this is why debt is accumulating over a short time period. Recent figures on UK finance show the yearly growth rate in credit card debt was 8.6% in February and this has been the highest since the last decade.

However, the government has been taking serious measures so that the debtors could quickly pay off their high interest debt. They will not only offer in-depth financial guidance to the debtors but there might also be possibilities of waiving of interest rates later on. As compared to all other forms of debt, credit card debt is probably growing at the most rapid pace. It has been pointed out by the experts that increasing number of consumers is using their credit cards while making regular purchases.

There were 250 million transactions made with credit cards throughout the UK in February and this figure has seen a rise of 3.3% as compared with the month of February in the previous year. Most of these were contactless payments as the credit card holders used their credit cards rather than using their debit cards. They may have done that to build loyalty points or for some other kind of financial convenience.

The government authorities are all urging the consumers to avert costly store cards available at the shops and bank overdrafts. If you don’t want to be attacked with crippling overcharges, you should avoid using your credit cards for good. 

© Jimmy Simond July 24th 2018

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