PricewaterhouseCoopers (PwC) latest report on card usage shows that unsecured borrowing fell by Â£500 per household in 2010.
The PwC report (Precious Plastic 2011 – ukmediacentre.pwc.com/News-Releases/Precious-Plastic-2011-PwC-predicts-fundamental-changes-in-borrowing-behaviours-as-unsecured-borrowing-falls-by-500-per-household-in-2010-fd8.aspx) also predicts that credit card debt will continue to fall in 2011 by a further Â£300 per household. '2011 looks set to be a difficult year for credit card and other consumer finance providers' it says. Overall household borrowing only fell by Â£6 billion to Â£1.45 trillion (negligible), but of this the unsecured credit amount dropped by Â£13 billion to Â£214 billion (down 5.7%).
The reason they say is two fold.
The first is that many people are now more worried about their debt and are repaying it when they can as opposed to taking on more. 40% asked said they expected their pay to be frozen or even reduced over the next year. As a result consumers are now reverting to what PwC calls 'jam jarring', the taking on of smallÂ shorter term loans for specific purposes rather than one large loan or open ended credit card agreement.
The second reason is that lenders are now more risk averse and therefore more picky about who they lend to and more conservative in their lending volumes to individuals. Part of this will be that many people will, as a result of the recession, now have less than squeaky clean credit histories and be unable to get mainstream credit.
They also say that this will lead to many people being unable to get mainstream credit putting them in the 'underbanked' category. As a result 'Point of sale finance products, payday loans, home credit providers and pawnbrokers will all play their part in providing for these kinds of consumers'.
It is also worthy of note that the number of credit cards in circulation fell to the lowest level since 2003 by 1.5 million last year, whereas debit card usage outstripped that of cash for the first time ever.
But the report also suggests that credit card (and loan) rates are expected to rise 2-3% over the next 4 years putting the average borrowing bill up by about Â£1,800 a year for the extra interest.
The worry is that there will be a significant rise in the numbers of those that really desperately need credit ending up in the hands of those that charge really usurious interest rates. Or constantly pawning their valuables just to put food on the table.
However there is some good news in the report. They found out that a surprising number of young people (70% of 18-24 years olds) intended to save more in the coming year. And there has been an overall increase from 35% in 2009 to 41% of people who want to put money aside.