The charity’s major new report, Stuck in Debt, reveals that people struggling with long term credit card debt were more likely to have their limit raised. 18% of struggling credit card users had their limit raised in the past year without requesting it, compared to 12% of all credit card holders.
People with credit card debts were also more likely to get into long term debt than those with personal loans and were less able to pay their debt down. Only 60% of people struggling with credit card debt were able to reduce it over two years, compared to 72% of people struggling with a personal loan – with credit card borrowers paying off £449 over two years, compared to a drop of £620 for people with personal loans.
Citizens Advice is also concerned that firms are not providing support early enough to people who despite meeting the minimum repayments are struggling with long term credit card debt.
The charity is calling for changes to protect people from falling into long term credit card debt, including:
Firms to be banned from raising people’s credit limits without obtaining their explicit consent to give people more protection against ever increasing debt.
The Financial Conduct Authority to provide clear guidance to lenders stressing that before increasing a borrower’s limit, they must check their ability to repay it.
Citizens Advice helped nearly 66,000 people with over 140,000 credit card debt problems in the last year.
One pensioner Citizens Advice helped was repeatedly called by firms offering more credit cards – despite the fact that she could only afford to make minimum repayments on her existing cards. She used the cards to meet her essential bills and ended up with a total of 21 credit cards and debts totaling £70,000. Another man the charity helped owed £15,000 on four different credit cards, but despite only making minimum repayments on each card which just covered the interest, he was notified by all four providers that they were increasing his credit limit. He turned to Citizens Advice for help when his debts hit £30,000.
Citizens Advice Chief Executive, Gillian Guy, said: “Irresponsible offers of further credit are pushing people into long term debt cycles. Citizens Advice helps thousands of people each year with credit card problems – including those struggling with large debts on several different cards that will take them years to pay off. It’s clear that irresponsible behaviour by some lenders is making people’s debt situation worse – such as offering more credit when they already have thousands of pounds of unpaid debt.”
“The regulator must ensure that lenders are taking into account people’s whole financial and personal situation before agreeing further credit. Banning firms from raising existing customers’ credit limits without seeking their express permission first would also help people take more control over their finances. Lenders must act responsibly and direct people struggling with debt towards free and independent advice and support – rather than more credit.”
The FCA has announced a range of proposals to help those already in long term credit card debt – who are spending more on credit card interest charges than paying off the total amount they owe. It says lenders should contact customers who have been in this situation for 3 years to arrange a plan to pay their outstanding balance more quickly.
Citizens Advice says lenders should be asked to intervene sooner – at the very latest after two years – to help people struggling with unaffordable debt.
Craig Simmons, Head of Debt at the Money Advice Service said “Household debt in moderation is not a bad thing. However, when money worries start to become a problem, for example if you find yourself using credit to pay essential bills or falling behind on them, it’s important to remember that you don’t need to deal with it alone. In the first instance, it can be a good idea to speak to your lender, who can often work out a repayment plan that is affordable to you. There are also lots of services available across the UK, who will provide personal, impartial and free advice to deal with money problems.”
Simon Cadbury, Director of Strategy at Intelligent Environments said “Today’s findings from the Citizen’s Advice Bureau – that credit card companies are targeting customers struggling with debt, with one in five seeing their credit limit automatically increased – is wholly unacceptable. Debt, when unmanaged, can be a deeply stressful issue, weighing on people’s minds and impacting all aspects of their lives – from work, to family life and relationships.”
“Clearly there is more to be done by financial institutions to ensure their customers are equipped with the tools to successfully manage their money.”