Three Quarters Of IVA Applicants "Living Beyond Means"

Most people who apply for Individual Voluntary Arrangements (IVAs) to sort out their unsecured loans and credit card borrowing say they were simply living beyond their means, says a new report. The findings have reignited the debate about low interest credit card deals and their effect on spending.

IVAs are an alternative to bankruptcy, and allow borrowers to pay off a little of their debt every month with suspended interest payments.

Accountants PricewaterhouseCoopers (PwC) examined the IVA applications made over the course of a month. During that time there were over 1,200 applications, around three quarters of those with unsecured loans said that they had simply been "living beyond their means."

Just one in five of those with difficult credit ratings said that they had lost their jobs or suffered a marital breakdown – traditionally the normal reasons for entering bankruptcy or receiving County Court Judgements.

"It implies there are two classes of borrowers," commented the head of personal insolvency at PwC.

"Those who consistently pay off their debts; then there is a revolving population of people who don't do that but occasionally fall off the conveyor belt."

Credit card companies have always been insistent that they are providing a responsible route to finance, pointing out that more than nine out ten of credit card unsecured loans in 2004 were repaid within a year.

But campaigners have been quick to attack credit card companies' practices such as mailing out low interest credit card applications and in some cases even blank cheques.

And now rising levels of bankruptcy and bad unsecured loans are putting a press on credit card company’s profit margins, while balance transfer credit card deals are estimated to cost the industry £600 million a year, despite the adoption of fees.

Banks are also increasing the amount of information on low interest credit card customers. With or without campaigner’s attention, it seems likely that access to cheap unsecured loans and low interest credit cards is likely to get more difficult, not less.

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