Debt charity the CCCS has seen an increase in requests for help with overdraft debt as consumers move away from credit card and personal loan borrowing
Credit card and personal loan debt is being replaced by more expensive borrowing through overdrafts, according to national debt charity the Consumer Credit Counselling Service (CCCS).
While overall debt levels in the UK are declining – as are the debt levels of those seeking the CCCS’s help – the charity has seen a sharp rise in overdraft debt among its clients, with the average amount going up from £1,748 in 2007 to £2,082 in 2012.
The number of people seeking its help with overdraft debt has also increased, from 58,069 in 2007 to 134,540 in 2011. That is set to be surpassed this year with 69,663 people seeking help with their overdraft debt in the first half of 2012.
The charity’s figures appear to contradict data published recently by the British Bankers’ Association, which indicated that while net credit card lending increased by £100m in August, net loan and overdraft lending fell by £400m, with net overdraft lending responsible for half that decrease.
However, Una Farrell, spokeswoman for the CCCS, said clients seeking help from the charity were often struggling with lower amounts of total debt than in previous years.
She added that the move from credit cards and personal loans to overdrafts reflected increased caution by lenders: “These people may have been turned down for a credit card or loan, but they will already have the overdraft with their bank account and just not used it in the past.”
Borrowers who use overdrafts are often paying higher interest rates than those using credit cards and personal loans.
You can borrow for up to 16 months interest free, with a subsequent rate of 16.9%, through Tesco’s Clubcard credit card, or pay 5.6% APR for the cheapest personal loan (currently from Sainsbury’s, according to MoneySupermarket). But the cheapest authorised overdraft quoted by the main banks is the 15.9% charged by First Direct. Some accounts also have a daily charge making it difficult to compare. Santander, for example, charges £1 a day. The rates for unauthorised overdrafts are eye-wateringly high, with the Halifax charging £5 a day.
The CCCS says overdraft problems increase with the age of the client. The average overdraft debt for those seeking help under the age of 25 is £1,128, which has only risen by £9 since 2007. The number of people in this age group seeking the charity’s help with overdraft debt has risen from 5,520 in 2007 to 7,992 in 2011.
The average overdraft for those aged 25 to 40 is £1,824, up £139 during the same period. The number seeking help with this increased from 23,353 in 2007 to 31,313 in 2011.
For those between 41 and 59 the average overdraft is £2,345, rising by £407 in the past five years. The number of people in this age group seeking the charity’s help with overdraft debt rose from 24,811 in 2007 to 38,298 in 2011.
But the biggest increase is for those aged 60 and over, whose average overdraft of £2,397 has risen by £597 over the five-year period. The number of people in this age group seeking the charity’s help with overdraft debt went up from 4,362 in 2007 to 6,950 in 2011.
The CCCS said people tended to view overdraft debt differently to other types of debt such as credit cards or personal loans, often not including it in their overall debt when seeking help. It warned that while the use of overdrafts may help people with day-to-day expenses in the short term – masking any problems they might have with making ends meet – it was unsustainable in the longer term.
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