More people are approved for loans and new credit cards, and rates are at all-time high – but is this good news or a worrying return to a debt-fueled bubble?
Lenders are becoming less strict when approving personal loans, according to a Bank of England report.
The Bank’s latest survey of credit conditions found that banks and building societies relaxed their credit rating criteria for personal loans in the last three months of 2015.
For credit cards, the credit rating criteria remained unchanged in the last quarter of 2015, according to the report.
However, the length of interest-free balance transfer periods on credit cards has increased dramatically, while interest-free purchase periods and credit card limits have also increased.
Overall, the availability of credit to households increased over the last three months of 2015, which lenders attributed to a shifting appetite for risk and a desire to meet market share targets.
Earlier this week, financial news site Moneyfacts reported that in the credit card market, the average introductory balance transfer time at 0% interest fell from 468 days a year ago to 590 days.
The 590-day average is the highest that Moneyfacts has recorded in its data since 2006.
With personal debt soaring, banks letting more people borrow, and rates low, it’s easy to forget that rates could go up. In fact, many experts believe they are on the verge of it.
The Money Advice Trust, the charity that runs the National Debtline, has raised concerns that many people already struggling with debt are unaware that interest rates could start to rise in a near future.
“The Chancellor’s warning to the British to prepare for higher interest rates was welcome, but the evidence suggests we face a huge challenge in getting this message across,” said Joanna Elson, Managing Director of the Money Advice Trust.
Even if they don’t, transferring money to 0% cards or cheap loans could – in fact – just delay a personal credit crunch.
Loss of income, or even a few missed payments, could seriously affect your ability to pay. This, in turn, could lower your credit score, which means that you can’t access cheap deals, or even no deals at all.
And then you end up with huge debt, with higher repayments and less ability to honor them.
Minimize the risks
While getting rid of debt overnight is not possible for the most part overnight, there are steps you can take to protect yourself.
“To minimize the impact of borrowing, you need to make sure that you don’t pay too much interest, which means getting the lowest rate possible so that you can pay off the debt as quickly as possible,” he said. said Kevin Pratt of MoneySupermarket.com.
“For example, it may be worth transferring credit card debt to a card that charges zero percent on balance transfers for a specified period, or opting for a low rate credit card if you are thinking. that it will take longer to pay off your debt.
“Alternatively, a low rate loan could be a way to consolidate several expensive debts in order to pay less interest.”
Overcome your debts
If you’re having trouble or want to reduce your debt, here are six tips from National Debtline:
Get on top of what you owe – Take a deep breath, open all your credit card statements and reminders, and make a list of what you owe, along with the interest rate and payment dates for each. This is the essential first step in taking control of your situation and establishing an action plan to reduce your borrowing.
Set up direct debit or reminders for payment dates – Signing up to make your monthly credit card payments by direct debit – or at least setting yourself payment due date reminders – can help keep you on track. This is really important, because even one day’s missing payment dates will add charges to your debts and could impact your credit rating.
Establish a household budget – You will also need to establish a budget by listing all of your income and all of your expenses. Remember to include things you might pay annually, like auto insurance, by dividing by 12. This will give you an idea of how much you have to pay for each debt and help you identify areas to reduce. if necessary.
Pay more than the minimum payment if you can – Making the minimum payment on a credit card can be tempting, but it means your debt will only increase and could take years to pay off. Always eliminate the balance as much as you can afford. This is also important, as only minimum payments can affect your credit rating, thereby affecting your ability to borrow in the future.
Consider switching to a 0% offer or a cheaper card – Consider replacing unpaid balances with a 0% balance transfer agreement if you can. It’s not a permanent fix, but you can use the time it gives you to work out a plan on how to start reducing the balance at the end of the deal. If you can’t get a 0% offer, shop around and find a card with a lower interest rate. If you have multiple credit card balances, focus on paying off the more expensive card first.
If you are having difficulty, ask for free advice as soon as possible – If you can’t even make your minimum payments or have other debts you are struggling with, seek free independent advice as soon as possible from a service run by a charity, such as National Debtline, Citizens Advice or StepChange. Don’t be tempted to pay for advice – avoid for-profit commercial debt management companies as they charge high fees which only add to your debt burden.
Contact National Debtline on 0808 808 4000 or www.nationaldebtline.org