The relentless rise in consumer debt is causing jitters among many analysts, financial advisers and debt charity groups. A new credit agency report points to the increasing number of consumers who have upped their spending levels by switching credit cards to interest-free deals. As a result, many have been recklessly spending in the belief they can handle managing debt as interest rates have remained at a historic all-time low of 0.5 per cent.
Alarm bells have being sounding in recent months over the false sense of security that six years of low interest rates and cheaper borrowing have created with large numbers of shoppers. Unsecured lending has increased by a significant seven per cent since December 2012, according to the credit report. But the Bank of England (BoE) has been strongly hinting that the rate will start rising again in autumn 2016.
Failed to heed the warning signs
The fear is that millions of card holders who fail to repay their transferred balances in the interest-free period will face a serious problem trying to get out of debt when interest rates begin climbing once more. Some economists have suggested that the BoE will remove the brakes early in 2016 and expect the ascent to proceed at a faster pace than is currently predicted. It could spell financial disaster for those who have failed to heed the warning signs or listened to sound debt advice.
It is always vital that part of any budgeting plan should be to pay off credit cards – and any other type of loans – before more spending or even putting away disposable income into savings. This is crucial when making the switch on some high-interest rate cards to a zero-percent interest rate card. Unpaid interest could rapidly spiral next year, despite BoE assurances that rates would start rising very slowly at first.
Consumers attention seems to have been averted
Clearly, the attention of card switch consumers seems to have been averted in the first part of this year by falling inflation and a slight wage rise rate in a few private sectors. In reality, Britain’s economic recovery has been largely fuelled by the resultant consumer spending while take-home pay has barely seen a one per cent rise in many low income sectors. Experts argue that ‘real terms’ pay has actually dropped and credit purchasing has increased to plug the spending gap.
With inflation expected to be on the upward march to target levels of 2 per cent or even more and the Bank rate rise probably less than 12 months away, the time for repaying interest should be definitely “on the cards”!