Card debt 'may hit wider economy'
With unemployment expected to top four million and many households already suffering from reduced income, there are fears that massive credit-card debts could trigger more economic turmoil.
Britain, where consumer debt in proportion to income has climbed above 170%, is seen as more vulnerable to such a crisis than European countries and the United States, where the International Monetary Fund fears 14% of consumer debt will turn sour.
The IMF believes consumer debt losses in Europe could hit £1.5 billion - much of it in Britain.
A lot of this debt, such as sub-prime mortgages, was securitised - passed on to new holders - and The Financial Times warned this week that the impact could extend beyond banks, possibly hitting insurance companies and pension funds.
Our plastic-fuelled spending spree is unravelling fast. Outstanding card debt tops £64 billion, but with average interest rates at 18% - or 36 times current Bank base rate - that's a big strain on the 40% of card-holders who pay interest on outstanding balances.
Andrew Hagger at Moneynet.co.uk believes that card companies may have kept their rates high in defence against the looming problems.
"If the debt situation worsens, rates could top 18%," he says. "I see big write-offs coming, as an increasing trend."
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