Credit Cards – Be Aware!

24th August 2010  

As we draw towards the end of the summer recess, David Cameron must be viewing his return to work with some trepidation. Over the coming weeks, the announcement of tens of thousands of redundancies in the public sector will likely see his popularity rating fall as fast as any prime minister in British history.

For although the die was cast for these events under a different Government, the way history remembers Cameron will be decided by how he handles himself over the drastic cuts in public spending that must be made on his return to work.

Although we’ve been briefed by the press and by Government that these changes are coming, as they manifest themselves in the form of an unprecedented number of job losses in public services, there will no doubt be a public outcry.

Whitehall mandarins have cleverly given the public the chance to vote online for where the axe will fall; you can be sure that when the balloon goes up, they’ll turn round and say “well the public vote said …”.

According to market researchers Markit and YouGov, household budgets are still under increasing pressure.  Recent figures from their ‘Household Finance Index’ indicated that people were ever more worried about losing their jobs and high UK living costs, despite the Government’s briefing that we have a growing economy.

Some 30% of the 2,000 households polled said their finances had worsened from last month; only 6% said they had improved.

A Centre for Economics and Business Research (CEBR) study showed family spending power falling 2.5% over a year. Their statistics show UK households had discretionary income of some £175 a week in July 2010, down from £180 a year ago.

CEBR economist Charles Davis said

“The outlook for earnings growth is poor and it’s unlikely to keep up with growth in the price of essential goods and services.

“The combined impact? Reductions in family spending power into 2011.”

Nearly 69% of Household Finance Index (HFI) respondents reported an increase in the price of their goods and services in August from July, the highest level since Markit and YouGov began their analysis 18 months ago.

Tim Moore, economist at Markit, said

“Stronger growth in the UK economy has done little to put a floor under the downturn in household finances.”

But despite this backdrop, and mutterings in the City about a double dip recession, you’ll be surprised to hear that banks are presenting struggling customers with offers of cheaper debt than was available before the 2007 economic meltdown. There’s also evidence that some card companies are easing their acceptance criteria for new customers, after tight restrictions during the recession.

Introductory promotions on credit cards are promised to last for an average of 12.2 months – even longer than at the peak of the credit boom in July 2007.

Other credit card companies are offering cash incentives to spend while the longest interest-free ‘balance transfer’ deal, aimed at borrowers switching negative balances between credit cards, now runs for 16 months.

We’ve all heard the undertakings from the banking industry that lessons have been learned at all levels within the sector, but did we actually believe them?

How aware are consumers looking for ways to spread their household budgets that once promotional 0 per cent periods expire, the rates credit card borrowers pay will soar?

They’re now at an average 17.3 per cent, up from 16.6 per cent at the end of 2008, despite the Bank of England base rate being held at 0.5 per cent for 17 months. Several financial commentators are predicting base rates of 5 or even 6 per cent within 2 years as the Bank of England struggles to control and balance the economy post recession.

Clearly to stay ahead of the banks, consumers need to be proactive in regularly reviewing credit card deals and jumping ship to the best deal that they can get away with.

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