Balance Transfer- is it all a house of cards?
Unless you have been living on the moon for the last couple of years, it is hardly a secret that the economy is in a mess. There is a common misconception that it is almost exclusively those who have lost their job, or who are on low incomes, that are suffering. In fact, recent research by Experian, the credit reference agency, shows that more and more middle class parents are being pushed into involvency and the average middle class family has lost £,1500 a year as rising living costs outstrip increases in earnings, according to the Government. So hard times are affecting us all, but not necessarily in the same way.
Middle class families have historically had one advantage over those with lower incomes in dealing with financial misfortunes, namely that they are far more likely to be able to use borrowing to finance their lifestyle and commitments but what we have seen over the last couple of years is a change in the pattern of how this is done.
Does this sound familiar? When times were good, loans were cheap and plentiful and this was the most popular way of funding debt, with the banks using vigorous selling (and mis-selling) of payment protection insurance to fund these cheap APR’s. Then this little scheme was rumbled and the loans dried up, so lots of people had to switch to using credit cards to ensure that they could keep on borrowing. An obvious way to do this was to use 0% balance transfer cards. The problem is that, eventually, the 0% period runs out and you can easily become a balance transfer “tart”, in a cycle of constantly chasing the next offer like a hamster on a wheel.
This can’t go on for ever. Eventually the “house of cards” can collapse and, to quote a colleague who has just been through this, “you are in a world of financial pain”. Earning a decent income is no guarantee that you can avoid getting into difficulty.
So is there light at the end of the tunnel, or is that just another train coming? There are some signs that lending is coming back. Credit card and car finance volumes increased by 3% and 16% respectively in January, compared to the same time last year. Whereas people have been overall paying off debt in recent months, credit card and unsecured debt actually increased by £800m in February, according to the Bank of England. If this doesn’t come soon enough for you, debt management is an option to help escape from a continued struggle to keep up repayments.
What is your experience of the “house of cards”? We would love to hear about it.