The number of credit card customers declaring bankruptcy to avoid paying large debts has jumped, according to consultants PriceWaterhouseCoopers.
Currently the credit card industry writes-off £2.4 billion a year on bad debt, but changes to the Enterprise Act have seen the number of people declaring bankruptcy rather than enter into voluntary credit repayment deals rise.
The new legislation means that many people are having their bankruptcies discharged after a mere six months, where in the past many people waited three years to be cleared. The new rules, which came into force in April also extend the maximum term to 15 years.
If card companies lose significantly more money to bad debt, they would be forced to increase interest rates for other customers.
Richard Thompson, partner at PWC, said: "There is a danger that consumers will choose bankruptcy over schemes of arrangement, which could reduce future recovery rates on delinquent balances.
The juggling of debt, by switching between interest free balance transfers, is also a risk to card provider's profitability - and so interest rates and special offers for consumers in general.
Mr Thompson added: "The widespread holding of multiple cards and the availability of [zero interest] balance transfers mean that consumers in financial difficulty can avoid delinquency in the short-term by transferring debts between various accounts."To read more about credit card balance transfers, click here.
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