Millions of Britons face a Christmas on credit as spending on plastic cards hits an all time high despite interest rate and fee hikes from high street lenders.
Since the credit crunch started to impact UK monetary markets, the major credit card companies have put the breaks on their lending which is now being evidenced by the number of consumers who have had their applications for cards declined.
In the past six months, refusals for credit card applications increased by 17% bringing the total 3.27 million, according to the latest figures from MoneyExpert.com. The research has shown that young adults are the most likely group to be refused a credit card with 15 percent of people aged between 25 and 34 being turned down in the last six months, more than any other age group. In contrast, only three percent of people aged between 55 and 64 were rejected in the same period.
Despite these statistics, it looks as if the UK’s love affair with plastic cards shows no sign of abating. A further report from independent market analysts, Datamonitor, has revealed that spending is up again for credit, debit and store cards. The combined value of ‘plastic’ transactions totalled £511 billion in 2006, up 8.7% on 2005 levels and projections for the future show that spending on plastic could reach an incredible £652 billion by 2011.
But if the recent credit card application refusals are anything to go by, UK consumers are going to find it harder than ever to get credit. Already, banks have imposed 125 fee and interest rate increases on credit card customers in just two months.
The screws have been tightened further with the decision to increase interest rates charged for cash withdrawals on 25 credit cards, 69 cards have seen increased cash withdrawal fees while balance transfer fees have been hiked up on a further ten cards.
Sean Gardner, Chief Executive of MoneyExpert.com, comments: “Credit card companies have had a rough ride with bad debt so it’s no surprise that they are becoming stricter on who they’ll lend money to. And with so many of us feeling the pinch following five interest rate rises since summer last year, credit is undoubtedly harder to come by than it has been for a long time.
“The real worry is that many people who are already in debt will find it increasingly difficult to drag themselves into the black. As your disposable income decreases, the hardest hit are those who owe money as simply servicing your debt can become a burden, let alone paying it back.”
And with Christmas just around the corner, there are fears that people will be trapped in further debt as the additional fees and interest rates start to take effect. Esther James, credit card analyst at Moneyfacts.co.uk comments: “Don’t just keep to the minimum repayments, take control of your debt and repay as much as you can afford each month. Doing so will knock years off your debt and save you a fortune in interest.”
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