Many Britons who have been hit by the credit crunch will see a credit card cheque as an easy way of boosting their current account balance and to buy themselves some breathing space, however, consumers fail to realise that fees can accumulate to unaffordable figures.

Credit card providers have agreed to allow customers facing deep financial pressure at least two months grace period on condition that the customer arranges a repayment plan with a debt advice agency.

However, the measure has not helped reduce the growing levels of consumer debt. Financial experts believe that in more than a year, a £500 cheque can attract an extra £150 in fees and interest. This means that consumers who use cheques are likely to be in much greater debt than those who use credit cards.

Limiting credit card spending was one of the many tasks the government faced in the wake of the economic recession and new regulations aimed at forcing Britons to face up to their personal debt problems have seemingly proved futile.

Experts believe that the changes were announced in order to prevent credit card companies from automatically upgrading borrowing limits without seeking prior consent. It was also expected to trigger a re-think amongst consumers on how much debt they can practically pay back.

Why the legislation won’t work

Those who dismiss the plans to be proposed by the department Business, Enterprise and Regulatory Reform (BERR) department on curbing consumer spending maintain that economic recovery will depend on availability of affordable credit which will promote consumer confidence and boost spending.

Industry critics say that the government is not tackling the problem head-on and many believe that the proposed changes in the new regulation to cut credit spending are minor and not the major steps required.

However, the changes were praised by industry insiders as the answer to out of control debts although critics say that an estimated £1.5 trillion in personal borrowing still needs to be paid back.

Those dismissing the new efforts by the government argue that in order to change credit card lending practises, emphasis should be placed on ensuring that payments made by people were assigned to the highest interest debt first and that consumers were not allowed to borrow beyond their credit limit.

Rising debt still a challenge

Reports show that consumers are battling with increased household debt at a time when there is high unemployment levels and mounting house debts. Credit card companies have been blamed for encouraging reckless borrowing and encouraging people to spend more than they can afford for far too long.

Card providers have been sending customers unsolicited cheque books which often carry higher charges than cards. Market sources say that legislation will not help tackle the debt crisis and could end up disadvantaging the same people it is designed to help.

Credit card companies have stated that they were “committed” to managing customers’ debt effectively. This involves agreeing to only ever raise credit limits or issuing credit card cheques when appropriate and relevant to an individual’s circumstances and after undertaking proper credit checks.