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Thursday, October 18, 2007

Debt Funds Debt

Shelter issued the results of a poll this week, that shows that over a million householders are using credit cards to pay their mortgage or rent.

The survey, conducted by YouGov for the charity's magazine Roof, polled 2,000 households last month. It found that 6% (over 1M) of householders paying mortgage or rent reported using a credit card to make payments. This figure rose to 7.5% of younger people aged 18-24, who were trying to keep a foothold on the first rung of the housing ladder.

Adam Sampson, Shelter's chief executive, is quoted in the Guardian:

"The number of people hit by the credit crunch, interest rate hikes and unaffordable housing costs, are rapidly rising. For many people trying to keep a roof over their head, desperation is driving them to short-term, high-cost borrowing."

Mainstream credit card companies charge interest at between 15% and 18%. However, the less reputable companies charge people with poor credit ratings 40% or more.

Using short term, high interest, debt to finance a long term capital commitment is the route to disaster. However, given the dire situations that some people now find themselves in it is difficult to see what else they can do without downsizing their property or rescheduling their debt.

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