August 25, 2010
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Allies Side By Side In Credit Card Debt, Pt.1
The temptation to spend.The gap between mortgage and auto loan interest rates continues to wide with that of credit card interest rates and consumers are beginning to wonder what's going on. Although the average card interest rate in the U.S. has been growing closer and closer to that 15 percent mark, cardholders in the UK are being hit with card interest rates of more than 20 percent. Lenders in the U.S. have been threatening to raise interest rates even further because of high credit card defaults over the past year. Of course, most consumers believe the real reason is because new legislation prohibits lenders from imposing unfair and high penalty fees on cardholders. Add to that the fact that cardholders have curbed spending and significantly reduced credit card debt which in turn has affected interest income for lenders.
As U.K. residents struggle to meet their families' daily needs, it has led them to increased credit card spending. The Office for Budget Responsibility which provides independent economic forecasts as background in the preparation of the U.K. budget planning recently issued a report that predicts that the average U.K. family will borrow over £24,000 during the next five years and by the year 2015; household debt will be over £1.8 billion. The numbers are staggering and indicate that U.K. residents have a long road ahead before the county's economy stabilizes. However, lenders have begun to solicit prime credit card customers with lower interest rate promotions that extend beyond the usual 6 month period to as long as 12 months.
Analysts fear that this surge of new credit card offers may encourage U.K. residents to increase spending and thereby place themselves in greater danger of becoming buried in debt. Furthermore, these interest free promotions will only put off the inevitable as cardholders procrastinate on setting new spending boundaries and plans to reduce debt. While U.K. residents continue to struggle with a weak economy, their allies the Americans have already taken action to lower debt. Read part two to see what's going on in the U.S. card scene.