- 6 weeks ago
Category
📺
TVTranscript
00:0035 million of us have a credit card and the amount we're borrowing is rising fast I have
00:12always had credit cards I've got about five six might even have seven I don't know but millions
00:18struggle to pay them off it just escalates and escalates the debt because you can't get out of
00:24it you feel like you're a failure we share tips on how to avoid unnecessary debt the minimum
00:31payments will mean that you really never getting out of debt we investigate the dangers of easy
00:37credit it's really easy to go from zero to tens of thousand pounds of credit card debt and lenders
00:43facilitate that way too easily and why checking your credit score might make you a target for even
00:50more lending you're getting these emails now even though you're trying to pay off the existing debts
00:55yeah wow that's really that's a lot
01:00credit cards are part of our everyday lives in the UK we now make more than 12 million credit card
01:16transactions a day and they can be extremely useful particularly at traditionally expensive times of
01:24the year how much do you use your credit cards like on holiday maybe or before I get paid credit cards
01:35allow users to spread the cost of purchases without having to apply for a loan debt on a credit card is
01:42usually cheaper than an overdraft credit cards also offer free protection for some purchases if your
01:50product or service doesn't arrive yeah mainly for online shopping for me I only ever use credit card
01:57online and some even have packs like air miles or cashback the annual percentage rate or APR including
02:07fees and charges can range from zero to more than 60 percent but for people with an average credit history it's
02:15typically about 25 percent I've arranged my own funeral and put it on interest-free credit card
02:23and are you confident you'll be able to pay it all off in the interest-free period
02:27providing I don't die yes if you pay off the bill promptly usually within a month there's no interest to pay
02:35do you pay off your balance in full yes and I know all the rates are otherwise
02:40I've been a financial journalist and author for 15 years I've also worked with lenders and credit
02:50ratings agencies right now average card interest rates are at their highest for 20 years each month
02:58nearly half of accounts that charge interest aren't paid off in full and that can lead to problem debt
03:05James Daly a fairer finance an independent consumer advocacy group is worried our credit card debt is
03:15growing together we owe 78 billion pounds household debt has been a problem for a long time but it's
03:24been growing because the cost of living crisis has meant that household finances are squeezed people's costs
03:29have been going up and so the only way to make ends meet in some cases is to take out some debt debt can
03:37then be with you for an incredibly long time screenwriter Michael Crompson used credit cards to bridge gaps in
03:48his income for years I had a very good credit rating because I own my own property and although I was self-employed I
03:56was earning good money so I was being offered credit cards left right and center I took out lots of
04:03different cards and when you have a mortgage to pay and you have lots of kids to pay for you know you use
04:08it as a sort of backup each month you can pay off anything between the full balance or what credit card
04:16companies call the minimum payment sometimes just two percent of what you owe the rest of the debt on your card
04:24is carried forward when Michael's work started drying up he began making only minimum payments I'd reach
04:34a limit with each of the cards and be paying the minimum I wasn't paying off the capital and instead
04:40of saying stop there Michael they would increase the limit which would give me that a slightly bigger
04:46breathing space oh that's great I've got a bit more to spend which of course over the months I I got
04:51higher and higher up on that those limits and then his circumstances changed two years ago my wife wanted
05:01to end the marriage and we went into a divorce and that was costing me a fortune and it also coincided
05:08unfortunately with lack of work there was just less work coming in oh god that's just just the worst
05:18nightmare really Michael ended up with twenty one thousand pounds of debt across three cards I've got
05:28to the point where I was having to find five or six hundred pounds a month just to pay the minimum
05:34payments it just escalates and escalates the debt because you can't get out of it and I realized last
05:42March April I'm in trouble I couldn't afford it I just couldn't afford it anymore and you just tumble you
05:51feel like you're a failure it feels like I can't admit to this who do I admit this to it's like something
05:57that happens inside you that hurts you you put it you put it away but it's there charity National
06:07Debt Line helps more people in credit card debt than any other form of borrowing we see that lots
06:15of people are only making the minimum payment on their credit card each month and what that means
06:20is over time the balance isn't coming down very much so your debt is growing or staying the same but
06:26you're paying a lot in interest the financial conduct authorities is about 2.8 million UK adults that
06:31are in what we call persistent credit card debt so that's when someone has paid more in interest over
06:38a certain period then they've actually paid towards the balance on their credit card so that often means
06:43you can get sort of trapped in credit card debt and find it hard to get out of that Grace Brownfield
06:50says the credit card industry profits from something those in the know call anchoring
06:56by displaying a minimum payment amount on bills it encourages many consumers to subconsciously identify
07:04that as the ideal payment amount in effect anchoring what they pay to the suggested figure
07:11there's some evidence that that encourages people to only make the minimum repayment even if they
07:18could afford to pay more than that and obviously by only making the minimum repayment people are
07:23paying more in interest typically and that's where the credit card companies are making their money off
07:28that interest there are some simple things you can do to avoid problem debt tip one minimum payments may
07:39seem appealing but if you don't pay off the full balance each month it's the credit card companies
07:45that profit Michael went to national debt line and citizens advice for support he's currently selling
07:55his house and plans to use some of that money to pay off his credit cards I absolutely know it's my
08:02responsibility to try and pay those debts and I want to pay those debts I'm 66 now and I've got to find a
08:10way of moving into in retirement of whether I'll be able to afford a house again I don't know but I've got
08:17to do it debt-free in 2018 the credit card companies regulator the Financial Conduct Authority was so worried
08:28about the levels of persistent credit card debt that it set out new rules to drive the numbers down
08:34before giving out new cards or increasing credit lenders were told to make sure customers could afford
08:42their payments but since then the number of people in persistent debt has dropped only slightly I do like
08:52this it's got some nice base dr. Tom Richardson is an academic who studies the impact of being in debt
09:01credit card debt is linked to kind of a range of different mental health problems but depression
09:06in particular it weighs on people you know it can make people really depressed really anxious people
09:12can feel hopeless about whether they're going to pay off lenders have a legal duty to support
09:17vulnerable customers and help them avoid financial distress Tom has bipolar disorder known to be
09:26associated with impulsive spending
09:34about a year ago I experienced a really bad manic episode I'll be honest it was probably the worst one ever
09:39so this is the guitar store it's a great place great local shop and this is a one of the shops I came
09:49to when I was really on well there wasn't anything in particular I wanted but moment I came in I saw
09:57this big 90s sort of beat processor sequencer with a floppy disk drive and it just looked really cool I
10:03I brought a ukulele oh and a bass guitar as well he didn't stop there he went online and spent more
10:13than three thousand pounds on instruments all on his credit card when you're manic when you're impulsive it
10:20just doesn't feel like real money yeah it was really really out of control when his manic episode
10:28subsided he'd almost reached his cards seven thousand pound limit I borrowed some money from
10:35my parents you know at my age I had to borrow money to pay off a couple of grand of the debt
10:39Tom's bank didn't query his erratic spending after his episode he told them about his condition
10:47but six months later Santander increased his credit limit
10:52the bank emailed me and said we've increased your credit limit from seven thousand to nine thousand
10:59I mean it was pretty mind-boggling really because I was trying to pay it down and do the sensible thing
11:05and start to gradually repay the debt and then the default was we're going to offer you more
11:09you know a year later I'm still in nearly five grand debt
11:12Santander told us that when he signed up to his credit card Tom opted in to automatic credit limit increases
11:22in a statement it said it monitors customer spending closely against past transactions
11:28in order to spot any unusual and unaffordable behavior
11:32a recent survey suggests four in ten credit card holders were offered increased limits in the last year
11:41and it made little difference whether people were already in problem debt they were offered increases
11:47just the same so tip number two it may not always be in your best interests to take up that offer
11:55I've come to the Millgate Shopping Centre in Bury with James Daly of Farrah Finance and Ruby Fletcher
12:07from National Debt Line we're setting up a pop-up clinic to offer advice on credit card use
12:12what's the situation with your credit cards so I currently have two the one I pay off monthly is
12:19all about 300 and the other one I make minimum repayments I think stands at two grand now the
12:25minimum payments only sticking to that it will mean that you really never getting out of debt I would
12:30really encourage you to think about chipping away at it more do you think you might be in a position to
12:34pay off more on that card yeah just not after Christmas I've got a few they're very well used
12:41at the moment with the Christmas and everything it sounds to me like using the credit cards to kind
12:46of pay for like living expenses I think it'd be a really good idea for you to sit down do a budget
12:51actually it might just be a bit of tightening the belt in one area to make it all balance out and that'll be
12:56fine let's say you've got an average interest rate of 25% you've got 800 pounds on your card and you're
13:04making a minimum repayment you know that can still take you 72 years to pay it off and so by the time
13:10you've paid it all back you know you would have paid many more times in interest than you've ever
13:16borrowed one of the most popular credit card offers is the zero percent balance transfer deal
13:26it can buy you some financial breathing space for a small upfront fee you transfer your balance onto a
13:34new card if you can pay it off within a fixed period you'll avoid paying any interest do a balance
13:41transfer fluid gives you nine months to pay it off interest-free attention-grabbing adverts
13:45promising an easy way to get on top of credit card debt try to persuade us to swap cards
13:510% cards might seem like loss leaders but what lenders know and you probably don't is that only
14:01around half of us pay off the balance before the end of the interest-free period the rest end up paying
14:09interest on the outstanding debt as teacher Claire discovered I got a credit card and before I knew I
14:19had maybe two credit cards and I treated myself to some designer things that actually couldn't really
14:25afford but I felt like I could because I had the available balance on the credit card and it sort of
14:32snowballed Claire decided to transfer the debt on the two cards onto one zero percent card I thought
14:40this was a good way to manage my finances but I didn't change my spending habits I still was increasing
14:46what I owed because I was paying the minimum payment I couldn't clear the balance by the end of the
14:52agreement so what I did was I combined all those debts again and got another zero percent and I did
15:00this maybe two or three more times and by the end of it I owed about 12,000 pounds in credit cards
15:06Eventually Claire was unable to find another zero percent deal that would cover her debts
15:14so at one point the interest and kicked in so it wasn't zero percent anymore it was more like 24%
15:21interest I was spending well over 600 pounds a month towards my credit cards but obviously I had
15:27other living expenses my car my house I just couldn't see a way and how I could pay it off it felt
15:33completely impossible I felt like I'd failed in this aspect of my life because I was in debt and I
15:40couldn't tell anyone about it and it just felt completely lonely the problem is once you move
15:47off those promotional periods and you're on interest rates of 25 30 35 percent borrowing becomes very
15:55expensive very quickly it's really easy to go from zero to tens of thousand pounds of credit card debt
16:02and lenders facilitate that way too easily so tip number three a zero percent balance transfer can help
16:09reduce the cost of your borrowing but to get the full benefit you must keep on top of your payments
16:15and make sure you pay it off before the interest-free period ends back at our advice clinic James find
16:25someone who could benefit from a zero percent deal but only if he's very careful when I was in full time
16:33I was able to pay the whole statement off in full at the moment money's very tight so you cannot just
16:40about pay off minimum at the moment the level of interest that you're paying compounding month on
16:45month yeah you could find yourself paying off that debt for years I mean sometimes it can be decades so
16:52you might be able to transfer whatever you've got left on your credit card now to a zero percent balance
16:58transfer card and then you won't be building up interest for a period of time but always have a have a plan to
17:05pay the balance off by the end of the zero percent period because once you start paying real credit card
17:10interest rates of 25 30 percent your debt starts to increase really rapidly
17:15credit card companies use something called a credit score to help decide if and how much to lend
17:21the score is based on things like your debt levels number of credit applications and whether you pay
17:29your bills on time a higher credit score means you're likely to be offered the most competitive
17:35interest rates and you may find it easier to borrow we are going to be talking about your experience credit
17:41score experience is the UK's biggest credit score provider its adverts say checking your credit score is an
17:50easy way to unlock better borrowing opportunities and take control of your financial health if your
17:57credit score is low there are two things you can do about it pay off some debt or open up new lines of
18:04credit but the cheapest cards probably won't be on offer so you're more likely to be pushed towards
18:12something called a credit builder card like smart moves for better credit that's the game plan with aqua
18:18the adverts make it sound so straightforward but there are risks if you don't pay off your balance
18:26each month the cards can quickly drive you further into debt sometimes these products are marketed as
18:34as being helpful as being helping you to build your credit score and in some circumstances they can
18:39be but they have much higher interest rates and the risk there is that if you're only making
18:44minimum repayment it's going to take a long time to pay off that debt Vanessa Clark says she owed 11,000
18:54pounds when she opened a new credit builder card from company new day new day uses slick advertising
19:03targeting video and social media platforms to promote its credit card brands including fluid marbles aqua and
19:12bit APR rates are advertised at 34.9 percent but if you have a poor credit history you may have to pay
19:23even more when I initially took out the credit card with new day I already had all the debts of the
19:29credit cards and I think it was about maybe 12 grand of debt before that three or four loans and then
19:34two or three credit cards Vanessa says her debts grew further and that a year later she owed more than
19:4113,000 pounds new day's response to increase the limit on her card from 300 to 1050 pounds
19:51you're already at the point where you've got no money you just use it instantly like you've got no other
19:57choice because you need to pay your bills you're paying other credit cards with it just general surviving
20:03far from building her credit score as intended more spending on her new card plus the mounting interest
20:11was pushing Vanessa further into debt you're running out constantly and then the payments going up and
20:17it's just like a never-ending cycle of I'm never going to get out of this you know some of these lenders
20:24are very aware they've got people using these cards in ways that they weren't intended but they're very happy
20:31about that because they're paying enormous amounts of interest to them in 2023 Vanessa complained to
20:38the financial ombudsman service new day conceded it shouldn't have given Vanessa the card or increased
20:45her limit and agreed to pay back all the interest charged more than 300 pounds last year new day wrote
20:55off fees or interest for more than three and a half thousand customers after they complained about
21:01unaffordable lending the center for responsible credit a research policy and campaigning charity has studied
21:12complaints about unaffordable lending the lender in this case new day is expected to reassess whether
21:21somebody can afford to repay that amount of credit and it's clear that new day are just failing to do
21:28that should the regulator be doing more yes absolutely more definitely needs to be done and for the fca to
21:36take action where it sees clear evidence of comprehensive failings the financial conduct authority says the
21:44reforms on persistent debt and affordability introduced in 2018 now save borrowers 1.3 billion pounds a year
21:52it also says lenders should only provide credit to people who can afford to repay it says it is currently
22:00reviewing the rules and if it identifies issues it will not hesitate to act
22:05in a statement new day told us new day products are fully regulated with robust affordability checks in
22:162025 just 0.09 percent of customers had a successful affordability complaint the vast majority of customers have a
22:26positive experience but is there something else going on with credit score providers mom of five Amanda has asked that we don't show her face she's on universal credit and 10 years ago went to a debt charity after her borrowing on credit cards hit 10,000 pounds it took years but Amanda says she got on top of her debt
22:54how were you feeling at that time relieved that it was all over um like i had a fresh start had then extra money back in my pocket in my household
23:09Amanda had signed up with credit score provider experian and like many people thought checking her credit score was a responsible thing to do
23:18it was really useful it was really useful like i'd get the monthly alert of the status of my financial affairs
23:26but as she came closer to paying off her debt the emails changed
23:32i wasn't just getting the monthly credit report updates it would be offers in the lines of
23:39your credit card approval rate has increased um inviting you to look at lenders
23:45she says experian bombarded her with offers of high interest credit builder cards
23:54and how frequently were these coming through
23:59too frequently um it's just constant
24:06and you're getting these emails now even though you're trying to pay off existing debts yeah
24:11wow that's really that's a lot
24:20many of the offers promised to improve her credit score if she took out a new card or loan
24:28and what was your reaction to getting those offers
24:30i thought i'll just just have the one keep it as an emergency um but then yeah the minute you take out one
24:38you get more emails again to apply for another one and another one and another one
24:47experian says the recent email sent to amanda highlighted options that could have allowed her to
24:53consolidate her debt and pay it off sooner or for less like many people amanda trusted that subscribing
25:01to a credit score provider could help her overcome her debt problems what she didn't know is that
25:08companies like experian are also paid commission by credit card lenders to promote their products
25:14well it's not fair people are ending up with worse outcomes because they're being encouraged to borrow
25:22more than they can afford to pay back and that has obviously consequences for them further down the line
25:29and amanda is far from alone a survey of low and medium income adults by the center for responsible credit
25:36suggests that marketing from their credit score provider led many to feel pressured into taking
25:42on more debt than they could afford over half said they had received offers on credit products from their score provider
25:52the real upshots of that are that many do take up those suggested offers and subsequently within
25:59six months according to our research face some very very problematic outcomes
26:04experience says it has been developing a process to identify potentially vulnerable customers and
26:11stop sending them marketing emails it also says it gives its customers as much information as possible
26:19to help them access credit they can afford and that it helps people understand their options for
26:25switching existing debt to lower or zero percent interest options helping people repay sooner and for less
26:34it also says it works closely with debt charities
26:42of course we all need to take responsibility for any debt we take on
26:48the government says it wants more financial education better access to responsible credit
26:53and more support for those in problem debt
26:55uk finance which represents lenders says that credit card providers are committed to lending responsibly
27:07and comply with strict regulatory rules to assess affordability when agreeing borrowing limits
27:13it also says support is provided by lenders to those at risk of or in financial difficulty
27:20i felt terrible i felt drained with all it's quite a physical feeling and it makes you feel
27:34really stressed i wouldn't want anyone to go through what i've gone through you get into the depths of this
27:40debt and don't want to admit to the world that you know i can't pay
27:49with the cost of living crisis still biting and with access to easy credit the uk's credit card bill
27:56looks set to rise even higher
28:14details of organizations offering help and support with debt hardship or homelessness are available on the
28:20action line pages of the bbc website or you can call for free at any time to hear recorded information on
28:26your phone number eight thousand one five nine seven seven four
Comments