It appears people are increasingly resorting to credit to meet their financial commitments which is fine when you have a job and can make the repayments, but what happens if that salary goes?
Braintree, Essex (PRWEB) March 30, 2009
A report suggesting 2.6million credit card users plan to spend more on their 'plastic' this year to pay household bills has prompted Payment Protection Insurance lobbyist Sara-Ann Burgess to remind consumers that a PPI policy is far more effective in meeting everyday living costs and will keep debts under control rather than prolong them.
Her response comes at a time when greater numbers of people are being forced to rely on credit cards to pay bills either because of falling household incomes or redundancy. Only last month the Post Office published a survey that said 32% of adults - around 10 million people - use their credit cards for daily purchases and despite a worsening economic situation, it found that 8% or 2.6million will have a greater reliance on plastic in 2009.
Around 45% of respondents do not intend to pay their bills in full each month - not only extending the lifetime of the debt but increasing the amount owed through extra interest. Sara-Ann comments: "When finances are stretched it's easy to think of a credit card as a good debt management tool - but it's not. So many people who have lost an income have no choice but to use their plastic to carry them through these difficult times, but minimum monthly payments still have to be made, the amount owed and resultant interest is increasing and at one stage the final balance will have to be cleared."
One lender recently announced the average credit card debt was £3,256. However, money education charity Credit Action estimates consumer borrowing via credit cards, motor and retail finance deals, overdrafts and unsecured personal loans was £4,870 per average UK adult at the end of January.
"It appears people are increasingly resorting to credit to meet their financial commitments which is fine when you have a job and can make the repayments, but what happens if that salary goes?" comments Sara-Ann. "Those with outstanding debts must consider ways to ensure their payments continue in the event of an income being lost and so avoid future financial hardship. Otherwise reliance on credit to pay credit will be the only option, which in the long term only racks up more debt and is unsustainable."
Debt management firm EuroDebt confirms that over one in five new clients seek help because they've been made redundant or lost an income. It cites the three main reasons why their help is requested as; debts getting out of control and less access to credit to manage them, loss of income/being made redundant and poor financial management.
Credit Action predicts that one in 33 people working in the UK will become unemployed this year, giving Sara-Ann even more reason to urge consumers to use PPI as a proactive debt management tool.
She concludes: "Whilst PPI can't help the millions who have been made redundant already, it will provide a financial safety net for those still in a job - ready to pay their bills should the worst happen. Given it could take months to secure new employment, and PPI pays cash benefits for up to a year I cannot see why more people aren't relying on this, instead of credit to access cash when funds dry up. Cover is easily accessible via the internet at low cost."
Premiums for PPI are calculated per £100 of benefit and purchasers can decide whether they want policy payments to meet their mortgage, loan or wider household commitments. There are options for accident, sickness and unemployment cover and specialist independent firms such as Burgesses and British Insurance are widely recognised as offering premiums that are far more affordable than higher-priced credit providers.