Lucid Mind

A new research has revealed that nearly 2.6 million Britons have plans to switch credit cards in 2008.

But 6.6 million will continue to hold on to their current credit card and thus pay an average of 16.82 percent interest, mainly because they were doubtful on getting a new card, on hearing stories of the number of credit card applications being rejected. These statistics were revealed by  MoneyExpert.com

Seven percent of all credit card consumers were switching over cards in January. However many were told to make use of the interest-free period and use this as a good time to pay off debts.

Chief executive of MoneyExpert, Sean Gardner stated that as millions of people become realize the high expenses over the holiday season, credit card companies should expect that January will see a lot of transfers happening.

While it is good to see people taking action, it’s still worrying that millions will just add their holiday debts to their current debt. This piling of debt on debt simply spells financial trouble.

Stopping borrowing costs, is the initial step towards taking control of the debt situation. Thereafter it’s important to pay off the debt. Transferring a balance is a start of sorts.

People who are looking to switch over to a 0 percent credit card deal are advised to be aware of balance transfer fees. At 3 percent, this could men 60 pounds on a 2,000 pound debt.

Egg and Virign Money are offering the longest interest free period of 15 months. Though it should be noted that 72.5 percent of all credit cards do make an offer of a transfer deal.

Customers between the ages of 25 and 34 are more likely to switch credit cards in the month of January and nearly 15 percent of credit card customers in Scotland have plans to do the same as against 6 percent of customers in London and the sever percent on the south-east.

A survey conducted by the Bank of England reveals that nearly a million families are finding it difficult to pay their mortgages and yet another 1.8 million have stated that on more than one occasion have they faced such problems.

The situation does not seem as if it’s going to get any better with banks tightening their criteria for lending due to the global credit crisis. The last 12 months have seen an increase in the annual mortgage payments of homeowners by a total of almost 3.6 billion pounds, all this due to soaring interest rates.

Taking note of the situation, experts have predicted that this could lead to more households being pushed towards debt and insolvency rates would break records over the next two years. Also, the real estate market and the economy as a whole will not fair any better and will take a major down turn.

The Bank’s Quarterly Bulletin has published a poll that illustrates how many homes have cut down on expenses with some even having to borrow some more. About half the families that are faced with high interest rates were left with no option than to cut down their spending, whereas about ten percent have had to resort to borrow more and in some drastic circumstance to prolong their mortgages. An additional ten percent had no choice but to take up another job or put in extra hours at work. All this just to repay their mortgage.

What’s even worse is that this poll conducted by the bank was conducted in September when the global financial crisis was just in its initial stages. Since then, the situation has taken a turn for the worse. In addition, a number of homeowners are missing out, due to some lenders not passing on the quarter-point interest rate cut which the bank had announced earlier this month.

Also people who are renting are finding it more difficult to repay their debts than those who have mortgages, mainly because they generally have a lower income, reveals the survey.  Nearly 28 percent of renters have admitted to having problems to pay their debts on more than one occasion.

The  Confederation of British Industry’s chief economic adviser believes that though the slowdown seems striking in comparison to this year’s strong growth, the basic fundamentals of are economy are firm and the entire talk of recession is just blown out of proportion.

The CAB or  Citizens Advice Bureau has stated that it has received a number of complaints with regards to the assertive approach that many banks are using and are targeting those in debt.

The BBC has found out that many customers, in order to clear their debts are under pressure to take out rather expensive loans. These customers have given their approval to a debt repayment plan with a debt advice charity.

Acting against the advice of debt charities, many banks are continuously calling customers to convince them to take costly loans.

An HSBC customer reported that although he did not accept a ‘managed loan’ that the bank offered him, they continued to call him to try and convince him to change his mind. Moreover this so called managed loan has an interest rate of 13 percent, amounting to twice the amount that he currently paid.

The HSBC further stated that he received a number of letters from the bank stating that they wanted to help out people who were facing a financial crisis whereas it was quite obvious that it wasn’t the case. HSBC agreed to the amount that he could repay each month, however this repayment would be accepted only after he would sign up for a managed loan.

HSBC in it’s defence stated that being a responsible lender, they (HSBC) only offered managed loans when there seemed to be no other lending options left.

Furthermore the CAB stated that it had taken note of many other situations where people in debt agreed to make payments where the banks had asked for much more than what these people could actually afford. In fact, in some cases customers had specifically asked the banks to deal with a debt advice charity but they continued to receive phone calls as well as aggressive letters.

A CAB spokesperson confirmed that they were aware of many cases where people have approached banks with regards to arranged payments and the banks have just ignored these requests and on the contrary asked for more than what these people could afford.

On the other hand, the British Bankers’ Association (BBA), the bank’s organisation stated that they were more than willing to work with debt advice charities. However the CAB reported that they found that customers continue to receive assertive letters and phone calls from their lenders.

A BBA spokesperson stated that it was basically negotiations that they carried out with money advice trusts.

Compared to 2000 when the average Briton owed just 17,000 pounds, this amount has been increased to 33,000 pounds, reported PricewaterhouseCoopers, international accountancy firm. Which means families are paying nearly twice as much than they did 7 years back. Increasing real estate prices combined with large monthly mortgage payments have been a main cause of this increase. Tough times are predicted for the future by experts because of the global credit squeeze.