Consumers cut card debt

The UK's combined credit card debt fell in May as consumers turned to personal loans and overdrafts to fund their spending, figures showed today.

The British Bankers' Association (BBA) said that while new borrowing on credit cards was 16% higher than in April, at £7.7bn, repayments had outstripped spending so that net lending had fallen by £251m.

This follows a period in which lending on plastic has been relatively flat.

However, the BBA's figures showed a surge in other sorts of unsecured lending, with the amount borrowed on personal loans and overdrafts rising by £699m over the month.

This is more than double the average increase of the last six months, and higher than last May's increase of £468m.

Howard Archer, chief UK economist at consultancy Global Insight, said he suspected the strong figures for unsecured loans to be a blip, rather than the beginning of a trend.

"Consumer spending and borrowing has clearly been boosted recently by sales of televisions and merchandise related to the World Cup," he said. "We suspect this could well prove to be a temporary burst of energy from consumers, as significant problems remain regarding their longer-term health."

Mr Archer said these included moderate earnings growth, a rising tax burden, soaring utility bills, higher debt levels, pension concerns and rising unemployment.

However, there are signs that UK consumers already face levels of debt that could become a problem if interest rates increase above their historically low level of 4.5%.

Last week, the Consumer Credit Counselling service warned of increased numbers of people facing "extreme debt" of more than £100,00, and today further evidence of the extent of problem debt in Britain was given by the advice firm Debt Free Direct.

The company, which helps consumers set up agreements with their creditors, said the number of individual voluntary arrangements (IVAs) it had set up for clients had doubled over the past year. Its profits had jumped by 177%, from £1.9m to £5.1m.

Debt Free Direct's chief executive, Andrew Redmond, said the rapidly growing IVA market "only represents the tip of the iceberg" and added that IVA numbers would continue to grow.

The company said there were at least one million over-stretched borrowers in the UK and the number was growing.

The Liberal Democrats will today host a summit to discuss concerns over the level of unsecured debt facing UK consumers.

Representatives of organisations including Barclaycard, Which? and the Financial Services Authority will meet the party's shadow chancellor, Vince Cable, and shadow chief secretary to the Treasury, Julia Goldsworthy, to discuss the scale and nature of the debt problem, possible solutions and what government policy changes could help.