With the increasing levels of debt in Britain becoming something of a crisis it would be wise to get rid of those high-interest store cards. If no repayments were made the debt accumulated on them will double within two years, which is often overlooked by customers who get drawn in by purchase deals and special events.
With this in mind, the Conservatives have today called for new powers to be granted to the Office of Fair Trading which they contend would be able to penalise retailers who charge “unfair” levels of interest on their store-cards.
The shadow chancellor George Osborne attacked what he called “Britain’s debt culture”. According to the Conservative’s calculations, Britons owe £2.2 billion on store cards, with the number of these accounts doubling to 13.4 million in the last 5 years.
Currently some store cards have annual interest rates of up to 29.9%, which is double the rate for credit cards. Clothing retailers Burton, Wallis and Dorothy Perkins top the table for highest interest charged, followed by Selfridges and Warehouse who charge 27%.
Mr Osborne made clear that these levels of debt left many in a perilous situation.
"We've got a big problem in Britain, we're addicted to debt, and we are seeing the consequences of that as the credit crunch hits, and everyone is finding it more and more difficult with the rising cost of living”
He called the high interest charges “excessive” and made clear that it was a priority to make these lenders behave in a more responsible manner, as well as the borrowers themselves.
"I'm not telling people whether they should take out a store card, I'm just setting out the boundaries to ensure fair play. We all have to pick up the pieces when people get out of control with their debts.
"While many people borrow responsibly, there are a growing minority who struggle to pay their loan bills. With the cost of living rising, that is likely to get worse.
"We need to take steps now to deal with the current problem and make sure that in future we don't repeat the mistake and let Britain become hooked on debt."
Osborne also enumerated a new plan to launch a national financial advice service. This would provide the public with “impartial and independent guidance on financial issues via face-to-face sessions, telephone advisers and online information” and would be paid for by a “Social responsibility levy” on the financial services sector.
According to The Guardian the best advice to people who have debts on a store card is to pay it off as quickly as possible and if necessary borrow on credit cards instead.
“If you want the discounts without the debt, the best advice is to pay off your purchases immediately, and then cut up the card. Otherwise, you're almost always better off with a credit card - provided you can get one”
Ed Bowsher of Fool.co.uk states that: "Store cards are the devil in disguise. They initially offer attractive benefits and bonuses which can be hard to resist but there is a downside to grabbing these discounts and deals."
Bowsher also branded as “clever” lenders who have increased the interest on their cards up to 7% in the last year but have stayed just under 25%.
During times of prosperity it has been easy to hide the growing debt problems facing the country but with the current credit crunch and any future market turbulence many could be left high and dry.
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