Hard sell needed on money management

LINDSEY ROGERSON

THIS week we were told that, once again, UK consumers set a new record for spending on their credit cards. But we were also told that, collectively, we are paying off more credit card debt than we are accumulating. So while we clocked up a record level of debt on cards, last year, we also paid down more than we borrowed - to the tune of £500 million each month. What it all means as ever depends on who you talk to. What is undisputed is that credit card debt has risen by nearly two-thirds over the past four years. Financial information group Datamonitor said this week that the UK’s total outstanding debt on cards was a massive £53.5 billion last year. But, crucially, even the man who compiled the report says there is little to be concerned about as long as people can keep up their repayments. However, MPs and debt councilors say more and more people are getting into trouble and that we need tighter credit laws to stop irresponsible lending. There have been a stream of stories in the press in recent weeks, some with tragic consequences, which seem to lend weight to this view of a looming crisis. As do the record numbers of people remortgaging in order to take equity out of their properties. And the record number of personal bankruptcies. However, those who monitor the credit card market, such as credit reference group Experian, say that the record number of cards in issue and spending can be explained away by the fact that an increasing number of consumers are getting wise to the benefits of spending on a credit card. Indeed, in the past year we have seen the launch of cards offering not just 0 per cent on balance transfers, but also 0 per cent on new spending as well. So savvy consumers can use their credit cards to buy now and pay later - but without incurring any interest costs. There are also the cards that offer reward points and airmiles. By buying on a credit card instead of a debit card - but paying off a the balance in full whena statement lands on the doormat - some consumers are likewise earning themselves free flights, but still not paying any interest. The Association for Payment Clearing Services (APACS), the trade body that represents UK credit card providers, points out that over 50 per cent of all card holders pay off their bills in full every month. And of those who don’t, the number of those getting into trouble has remained more or less constant for the past four years, at 9 per cent. And in spite of recent headlines questioning how a pensioner could be allowed to run up £70,000 worth of debt or a man earning £30,000 a year was allowed to rack up £80,000 on credit cards, APACS points out that compared to the average amount borrowed per account the average amount owed by a cardholder in difficulties has been falling since the start of 2000. Proof, it claims, that card providers are on top of the situation, spotting if people are in difficulty earlier and taking action. APACS advocates that lenders use a scoring system for card users giving three points to consumers who pay off their balance in full and just one to those who pay only the minimum amount off each month. Something does need to be done and it is to be hoped that the lead will be taken by the government when it makes the first changes in three decades to UK lending laws later this year. The Treasury Select Committee has already shown what can be achieved, in forcing some (though admittedly others did it voluntarily) to put a uniform summary box of charges on product literature. However, more remains to be done to educate vulnerable consumers on the true cost of borrowing, especially as according to a financial wellbeing survey carried out by investment group JP Morgan Fleming, 37 per cent of adult consumers are planning to increase their spending in the next 12 months. This is proof the group says that British consumers are living for today and not thinking about the future. Reminding people that tomorrow may not be as bright as today if the wrong financial actions are taken is not going to be an easy sell, but it is a sale that needs to be made if more tragedies are to be avoided in future.