1 Hour Cash

As increasing numbers of consumers fail to pay their credit card bill, banks and credit card companies are taking action to protect themselves and reduce future damage, which they are already experiencing.

PricewaterhouseCoopers (PWC) estimates that on average, British adults owe £33,000 each in unsecured loans. Startlingly, this amount has doubled since only 2000.

The inability of consumers to pay their credit card bills has resulted in credit companies losing £4 billion, estimated PWC in its Precious Plastics 2008 report.

In response, credit card companies are rejecting credit applications right and left, and “banks are tightening their credit acceptance policies,” says Richard Thompson, of PWC. Thompson goes on to explain that “Many consumers will find it increasingly difficult to obtain credit in the run-up to Christmas.”

The results of the current credit crisis continue to unveil. The problem began with the huge number of Americans unable to pay their escalating mortgages. The US sub-prime mortgage sector subsequently fell out, and when it emerged that many major financial institutions would suffer from having purchased these sub-prime mortgages, banks got stingy with their lending practices.

With increased lending rates, consumers now are feeling the heat of the credit crisis throughout the world. According to the Daily Telegraph, credit card companies (and even admittedly Goldfish) are attempting to protect themselves by reducing the amount of money their customers can borrow, regardless of the customer’s credit history.

If the stock market is an indication of the current situation, it’s quite gloomy. Citigroup, who has been intimately involved with and impacted by the sub-prime mortgage fiasco, reported a shares loss of 6% on November 19th. In addition, London’s FTSE experienced its largest drop since August. With forecasts indicating the light at the end of the tunnel cannot yet be seen, more trouble is sure to emerge for investors and consumers.

If you have been tending towards purchasing items with cash instead of whipping out your credit card recently, you aren’t the only one. Debt consultancy Thomas Charles released results of their recent survey of nearly 2,000 adults, finding that a quarter of them planned to avoid spending on their credit cards this Christmas season. 10% of those polled said they wouldn’t make a major transaction on their card for the next six months.

James Falla, Managing Director of Thomas Charles, explained his view of the high number of consumers avoiding credit cards: “Interest rate rises and subsequent mortgage hikes mean that people have been relying on credit for their everyday expenditure - credit they can often ill afford.

He explained that the results of the Thomas Charles survey indicate excellent news, that Britons are starting to address their debt issues. “This is good news for the man on the street,” he said, “but may signify bad news for retailers who have come to rely upon the vast amounts of credit spent at Christmas time.”

James Falla’s vision of Britons addressing and rectifying their debt problems is certainly a good and needed thing; according to another survey completed in the Thomas Charles poll, a whopping 15% surveyed held unsecured debt of more than £10,000 from various credit cards and loans.

Debating on whether or not to purchase that flat screen online? If it’s coming from abroad, you can now rest assured. Heretofore, consumers who wanted to purchase overseas had a great reason for concern due to the fact that credit card companies were not responsible for insuring these purchases.

However, the House of Lords ruled that credit card companies must refund consumers for overseas purchases. This excellent news for consumers, who last year spent an estimated £16.4 billion overseas, came at pain to the credit companies. However, appeals by Lloyds TSB and Tesco Personal Finance were denied.

Following this new ruling, Section 75 of the Consumer Credit Act 1974 now states that overseas purchases between £100 and £30,000 will be insured by credit card companies in the same manner as purchases made in the UK.

Mike Naylor, Personal Finance Expert at uSwitch, commented that: “This landmark decision has finally laid to rest the issue over credit card protection for overseas transactions which has been rumbling on with credit card suppliers for several years. The decision to uphold it means that wherever in the world consumers use their credit card, they can enjoy the same protection as they do in the UK.”

Mr. Naylor adds that the Consumer Credit Act has been brought into the 21st century, stating: “This is especially important with the growth of internet shopping where goods are often shipped to the UK from sites based overseas.”

If you can dedicate just one hour a week to reading our blog, we believe you will be firmly on the road to financial freedom.

Its all about understanding UK finances, restructuring your debts and investments and reaching financial freedom.

Enjoy!