In a desperate attempt to secure credit, around a million customers have turned to sub-prime lenders charging 60% interest on outstanding credit card debts.

Credit card debt problems set to soar

The reported 2,700 people applying daily for sub-prime Provident’s Vanquish card will typically have a poor credit history, and may have experienced debt problems in the past.

Average interest rates on credit card debts with the company’s cards are 39.9 per cent – but those worst off will be charged up to 59.9 per cent on their outstanding balances.

As the economic crisis has left many household budgets shattered, desperation has taken hold and many families have relied on personal loans, overdrafts and credit card debts to make ends meet.

Recently released Bank of England Figures showed that UK consumers owed a huge £61.5 billion on credit card debts in January – up 15 per cent on the previous year.

Many highstreet lenders are still refusing credit to customers, as they tighten their lending criteria and reduce their exposure to “higher risk” consumers.

Even sub-prime lender Provident admitted that around 830,000 applications for their credit cards had been rejected, prompting concerns amongst debt advice organisations that they may be forced into the hands of unscrupulous lenders.

Ivan Cooper, chairman at debt help specialists Chiltern, said: “Some doorstep lenders and pay-day loan companies charge eye-watering rates of around 3,000 per cent, which can trap people into an ongoing cycle of debt problems.

“When people are refused credit or when they are struggling to maintain finances, they need to seek impartial debt advice – as there may be spending problems that can be addressed with some simple debt help.”

Former Treasury minister, Lord Higgins, said: “The recent increase in the interest charges on credit cards, when the cost of capital for these credit card companies is probably at the lowest level ever, is unjustified.”

UK credit card borrowers are paying around £30 million a day in interest payments.

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