How to end the long term credit card debts?

The Financial Conduct Authority (FCA) reported that 3.3 million people in the UK have long term credit card debts. In fact they are repaying less in principal than they are paying in interest and charges over a period of 18 months. According to the analyses of the FCA a customer with a £3,000 debt on a credit card with an annual percentage rate of 19% will be able to clear the debt within 20 years with paying as much in interest and charges as in principal.

Of course, the inevitable realty is that as the financial products are so profitable for the lenders, it seems impossible for the borrowers to decrease their debts. The FCA tries to produce solutions to reduce the effects of this debt crisis in the UK. It proposes that lenders must demand persistent debtors to make faster repayments if they default to pay in the first 18 month. After another 18 months, they may suspend the card. And, if the customers are not able to make faster repayment, interest and charges would have to be reduced in order to protect the customer to collapse economically.

Being a good example, Royal Bank Scotland has taken a principled stand against interest rates on credit cards since 2014 saying that they are not doing the business of trapping people in debts they cannot afford. Due to the fear of missing the profits of the debt pool of the customers,  just a few big banks have been interested. In fact, this is a problem that can be solved by the efforts of two parties in common. As lenders reduce the interest rates and charges on credit cards and loans in order to relieve debtors’ payments, debtors also have to keep their expenditures in balance. Legal obligations must also be taken by the UK government. Unless lenders are forced to accept a few obligations to borrowers, the grubbier end of the credit card industry will look outright exploitative.

 

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