Mortgages Direct

“Credit card companies can expect a busy transfer season in January as millions of us wake up to the cost of Christmas before the New Year financial hangover sets in,” said Sean Gardner, Chief Executive of MoneyExpert. Some 2.6 million Brits in fact, are planning to switch credit cards seeking lower rates, in 2008 - according to new research.

Currently, there are 6.6 million credit card users paying an average of 16.82% interest, according to MoneyExpert.com. As the credit crunch begins to shape the future of more people, many will see an increasing number of their credit card applications rejected.

For those 7% of credit card customers who will be able to switch cards in January, many are warned not to enlarge existing debts. The interest-free period that nearly 72.5% of all credit cards offer is an excellent time to pay off debts instead of adding to them – and consumers are being heavily advised to take advantage of the opportunity

“It is good to hear people are taking action but worrying that millions will simply add their Christmas debt to their existing debt. Piling debt on debt is simply adding to the spiral of increasing financial trouble. People should be taking action to get their debt under control and the first step towards that is to cut borrowing costs. The next important step is then of course to pay the debt off but transferring a balance is at least a start,“ offered Mr. Gardner.

Companies such as Egg and Virgin Money offer some of the longest interest free periods currently available at 15 months. Longer interest free periods can reduce debt - however consumers are warned to beware of balance transfer fees on their new cards. A balance transfer fee of merely 3% can cost an additional £60 on a £2,000 debt.

Research showed that 15% of credit card holders in Scotland, 6% in London, and 7% in the south-east are among the group of credit card users between the ages of 25 and 34 most likely to attempt to switch cards in January.

According to recent research the mounting credit card debt of roughly £9 billion will transfer from one plastic product to another, in the New Year.

Abbey Credit Cards conducted a survey of over 1,000 adults and found that Britons are looking at the savings credit card transfers can give them on the interest they are paying. Nearly 3 million credit card users around Britain are expected to transfer an average of £2,666 in the first three months of 2008.

“It’s great to see that many people are already turning their attention to getting their finances in order. January credit card bills can often catch people by surprise, so we would encourage people to keep a check on their finances over the festive season and plan ahead to ensure they aren’t paying over the odds for their plastic,” recommended Roger Lovering, Abbey Credit Cards Managing Director.

The survey also found that both gender and geography has an impact on the expected amounts that will be transferred early this year.

When compared to 8% of men transferring a balance of £3,395 across to another card, only 7% of women will be transferring an average balance of £1,820. The residents living in the Midlands are expected to transfer £3,021, just above those living in south-east England, expected to transfer £2,900. Other areas, such as northern England will have an average of £2,501 expected to switch, which is more than Scotland at £2,154 and Wales and the south-west coming in at £2,022.

Transferring higher interest rate balances is an effective way of reducing repayments when utilizing credit cards with lower interest rates, especially when coupled with the wide variety of zero introductory rate cards, available today.

A survey carried out by the Bank of England showed millions of Britons are being adversely affected by debt. Even as households cut spending or borrowed more to cover expenses, almost one million families consistently had problems paying off mortgages and another 1.8 million individuals reported, ‘at least occasionally’ encountering problems with debt repayments. 

Interest rates have mounted drastically for homeowners and yearly mortgage payments rose to £3.6 billion in the last 12 months.  As banks continue to tighten their lending policies, the number of households encountering debt is expected to rise over the next two years.

Half of the families included in the Bank’s Quarterly Bulletin survey were forced to reduce their spending and another 10% of households have been pushed to borrow more or extend their mortgages. In an effort to make mortgage repayments, another 10% of homeowners are taking on second jobs, freelancing or working overtime. With lower incomes, renters are being hit hardest as 28% of individuals report trouble paying debt ‘at least some of the time’.

The Bank of England’s survey was taken in September, when the current credit crisis was just beginning. At the beginning of the New Year, many are seeing even worse financial situations than  during the latter half of 2007. Even more damaging, a portion of homeowners are unable to utilize the quarter-point interest rate cut  mandated by the Bank of England earlier this month - as their lenders are failing to pass the savings to their customers.

 Conversely, the Chief Economic Adviser of The Confederation of British Industry said that while the slowdown of the economy may seem to overwhelm the year’s strong growth, the fundamentals of our economy remain sound and talk of a full-blown recession is exaggerated.

Many families are shown to be nearly twice as in debt than they were only 7 years ago. The average Briton now owes £33,000 as opposed to the £17,000 owed in 2000, according to international accountancy firm, PricewaterhouseCoopers.

With the rise in property prices and mortgage repayments, many families are feeling the affects of a global credit squeeze which experts warn will continue for some time. If the struggle to survive financially was not enough hardship for most households, now banks are increasing pressure manoeuvres on many customers to pay more than they can afford.

The Citizens Advice Bureau (CAB) has been replete with customers who report being upset about the ‘aggressive tactics’ being used by banks on those in debt.

One such customer of HSBC complained about the continuous phone calls and harassment he received after repeatedly rejecting the bank’s ‘managed loan’ proposal which included a 13% interest rate - twice as much as he is currently paying. Although HSBC agreed to the amount he was able to pay, the bank would only accept the terms if he signed up for the managed loan offer. 

In addition, HSBC also sent numerous letters with claims of wanting to help customers in financial trouble when their aggressive behaviour suggested differently.

Even the BBC has discovered many cases of customers begin hassled by their banks after putting a debt repayment plan in place. Often the banks pressure customers to agree to costly loans to immediately repay the debt - which goes against the advice of debt charities.

On their part, HSBC responded by saying ‘as a responsible lender HSBC only offers a managed loan to customers when all other lending options have been exhausted’.

The British Bankers’ Association (BBA) commented that banks are always willing to work along side debt advice charities to help their customers, however CAB often finds their customers still receive harassing phone calls and letters. 

In many cases the CAB has heard of customers who attempt to work with their banks and offer to make payments, but the bank asks for more than they can afford. Even after the bank has worked with a debt advice charity, the customers continue to be pressured to pay more in higher interest products.

A spokesperson for the BBA explained that when banks work with intermediaries, like money advice trusts, they consider the agreements to be negotiations. This suggests that, while customers of debt advice charities can benefit from financially sound information, not all banks will be as willing to assist customers in a mutually beneficial manner.