Credit cards more easily accessible, but at what cost?

19th September 2012  

The number of officially unemployed UK citizens currently stands in excess of 2½ million, and when you include the number of families and pensioners living on very low incomes the percentage of people living on or below the poverty line has risen significantly since the recession first bit back in 2008. Parenting on state benefits or a low income is fraught with difficulties, especially when ‘robbing Peter to pay Paul’ becomes the norm.

Birthday nightmare for parents on low incomes

Key times that exacerbate parental feelings of helplessness and anger include Christmas, birthdays, holidays and outings. What should then be a happy time for families becomes a nagging worry for mums and dads who try to provide their children with the clothes, games and toys their more affluent friends frequently enjoy.

So what do they do? What would you do? The number of UK credit cards that offer credit to unemployed applicants has risen from 17 in 2011 to 23 in August 2012. The Consumer Credit Counselling Service (CCCS) advises that credit card debt has, in the main, decreased during 2011/12, but that could change if significant numbers of people who are jobless or on low incomes accrue debt they cannot repay by taking up some of these credit card offers.

These credit cards carry associated fees (for late or missed payment etc) and the interest charged on purchases is significantly higher. For example the typical APR last year was around 27.9%, a figure which has risen a full 2% in the space of a year.

An APR of 20% or more makes it very difficult for an unemployed or low income card user to repay their debt and keep up with accruing interest. In addition to this, credit card companies have also hiked up the average balance transfer fees by more than ½% from 2.27% in 2011 to 2.81% in June 2012.

Unethical lending keeps people enslaved in debt

Irresponsible lending does nothing to help families, but it does go a long way to bringing stress and sleepless nights to well-meaning mums and dads across the UK. Paying the minimum amount each month may not seem a significantly large sum of money and may even appear manageable but how much of the debt is actually being paid off? Check your credit card’s Terms and Conditions and also your statements carefully and see how your monthly payment is apportioned.

Cash advances on your credit card account incur stiff charges and attract a higher rate of interest. Avoid withdrawing cash on a credit card account as the interest spirals more quickly than with purchases. A good rule of thumb is to leave credit cards alone unless you can pay of your balance in full by the time your statement arrives – anything else is pouring money into the ever-hungry coffers of the credit card company.

We beg to differ, say the UK credit cards representative body

The official line of the UK Cards Association is that the credit scoring system used by credit card companies will make sure that cards are only given to those who can afford the repayments. The Association also argues that it would be to the detriment of the companies to offer credit terms to those who cannot afford to repay.

Whatever the situation, the message is the same – a credit card has to be used with care to avoid increasing your level of personal debt. Even if you can’t afford the best presents for your kids this Christmas, saddling the entire family with the worry and burden of debt for years is far worse than disappointing your kids for one day. Think carefully before you take out that credit card – the perfect family Christmas may lead to a bleak and debt-ridden New Year.

(If you feel you can’t afford to get into debt but still want the flexibility of shopping online that a credit card gives you, check out our range of prepaid credit cards which work just like a pay-as-you-go phone. You just load onto the card the amount you can afford, and when its gone, that’s it. No extra charges for getting into debt!).

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