Insolvency crisis looms as credit cards write-offs continue to rise

Credit card debt unmanageable for many, according to new figures

By Luke Whitmore, 25th June 2010

The amount of credit card debt written off by financial institutions has continued to rise, a report from the Bank of England has revealed today.

During the first three months of 2010, write-offs increased to £1.25bn, making for the second highest quarterly statistic ever recorded.

The situation has arisen as a result of thousands of people being unable to afford their repayments and declaring themselves financially insolvent. This has led to credit card providers increasing interest rates ever more to recoup their losses, causing further risk of insolvency to those saddled with debts they cannot afford to pay.

In 2009, approximately 10% of all money borrowed on credit cards was written off - a record amount of £4.12bn - even as reports suggest that the recession has led to a greater number of people taking measures to reduce their borrowing and make an increase in how much money they save.

The Bank of England has stated that last year, people deposited £24bn into bank accounts, while only £20bn was taken out in new loans - the first time since 1988 that the amount saved has exceeded the amount freshly borrowed.

Despite this, a ComRes survey conducted on behalf of insolvency experts R3 suggests that an unprecedented 146,948 people will become insolvent across England and Wales during 2010 - an increase of 10% over last year.

Steven Law, the president of R3, warned that this study indicated that the country is "on the brink of a personal insolvency crisis that will take years to work through the system".

"We know there are nearly a million people out there who are struggling with their debt," he stated in light of the report. "While it may be the case that these problems are resolved without help, there is a risk that they might snowball out of control."

Claims Financial