Tuesday, 27 November 2012
Mainstream Lenders must respond to mounting credit card debt crisis
I want the 10 minute rule motion to highlight the role played by credit cards in getting people into chronic debt, where they can only afford to pay interest with no realistic prospect of reducing the principal.
At a time when the media spotlight has fallen on the high interest rates charged by payday lenders, I maintain that mainstream credit card companies are not immune from responsible lending as the numbers of people in debt continue to rise.
Research commissioned by Step Change suggest that there are at least 3 million households presently in financial difficulty and a further 3 million at risk. They further suggest that credit cards play a significant part in their predicament.
Credit cards, though undeniably often useful and convenient, are a major cause of agony for many people, particularly those struggling with everyday finances. The number of people seeking help with credit card debt has risen sharply in recent years, but the recession has seen it rise even further.
Whereas people may have once used credit cards for luxury or exceptional purchases, many are now using them simply to make ends meet and – what is more – committing to further credit card borrowing when one card is ‘maxed out’, in order to ‘plug the gap’ in household finances. Indeed, multiple credit card debt is becoming a feature of life in the 21st Century and figures disproportionately in cases of the most intractable debt problems.
The result of using one credit card to pay off another is a viscous cycle of increasing debt, as interest and other charges are added to the initial capital sum. This can lead to a real sense of hopelessness and despair as the balance hardly reduces over time.
The important thing is to reduce the speed of the pay down. And my Bill will achieve that. It may still take time for the magic ‘three times’ threshold to be reached but at least borrowers will be able to see, for the first time, light at the end of the tunnel.