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Families on the Brink of 'Insolvency Crisis' After Decade-long Credit Card Binge - 25.06.10

Families on the Brink of 'Insolvency Crisis' After Decade-long Credit Card Binge - 25.06.10

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Published by: Simply Debt Solutions on Jun 25, 2010
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07/02/2010

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Familiesonthebrinkof'insolvencycrisis'afterdecade-longcreditcardbinge 
By        SamFleming        Last updated at 8:04 AM on 25th June 2010         
Debtstress:Thousandsoffamiliesarespirallingintoinsolvency.(Posedbymodels)
Families aredrowning in debt after a decade-long binge on credit cards.   The Bank ofEngland today warns lenders are writing off record quantities of credit cardborrowings as thousands of     individuals spiral into insolvency.   Lendersare responding by pushing up interest rates even higher, putting more familiesin financial trouble, the Bank said        in its Financial Stability Report.   The findings are backed up by separate research which today warns of alooming insolvency crisis’in the UK.   A record 146,948 Britons will bemade insolvent in England and Wales this year, up 10 per cent on 2009, accordingto a         ComRes survey for insolvency practitioners group R3.   Steven Law,president of R3, said: We stand on the brink of a personal insolvency crisisthat will take years to work         through the system.   We know there arenearly a million people out there who are struggling with their debt.   While it may be the case that these problems are resolved without help,there is a risk that they might snowball out of     control.’  Britain is nowby some measures the most indebted country in the world, the coalitions Budgetsaid this week.   
 
Lax lending standards and a huge appetite forconsumption in the decade leading up to the credit crunch has led tens of     thousands of families to rack up unprecedented quantities of credit card debt,overdrafts and unsecured loans.   But it is now payback time as loans aredue in the wake of the deepest post-war recession.   Chancellor GeorgeOsbornes draconian Budget has only heightened fears about households’abilityto weather a storm of     tax hikes and welfare benefit cuts.   The averagefamily on ‚45,000 a year will suffer a hit of more than ‚700 to their take-homepay as a result of the         Governments decisions, research for the Daily Mailshows.   The Bank of England reportshowed in the year ended March 2010 banks wrote off more than 10 per cent oftheir credit    card loan balances.   This was a record rate, up from 7 percent in 2007.   This amounted to 1.25billion of defaulting debt in thefirst quarter of 2010 alone.   Over the past 12 months banks have writtenoff more than ‚4.5billion of credit card loans.   The Bank warned theburden of interest payments could become even more crippling if officialinterest rates were to rise         from their current ultra-low levels.   Theofficial Bank rate has been slashed from 5.5 per cent at the beginning of 2008to just 0.5 per cent today.   Yet in the same period the average creditcard loan rate has risen.   At the start of 2008 it was 14.8 per cent,according to Bank of England data, but it now stands at 16.5 per cent.   Afurther setback to the economic recovery would also make matters even worse, andaggravate household distress,’the         Bank reported.   It said: In theabsence of significant de-leveraging (debt repayment) by the household sector,UK banks are exposed to         the risk of higher defaults were interest rates to risefrom their current historically low levels or recovery to falter.’  Thereport added: Unsecured lending to UK households accounts for a relativelysmall proportion of UK banks’loans to         domestic customers’.   

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