Call it a need for “consolidation education” among at least one in every four credit cardholders in the United Kingdom who carry balances but who are unaware of other loan products to consolidate their card debt.
Credit card issuers and credit marketers have an opportunity to show such consumers how they can save money with a consolidated loan product, according to the most recent Cardbeat survey report on the UK card market from Auriemma Consulting Group, which has offices in both London and New York. For example, such a loan could be a personal loan or a line of credit, though the survey found many consumers are willing to pay a higher interest rate on a credit card if they view it as an easier process.
For its research, Auriemma during the first quarter of 2011 surveyed 503 UK credit cardholders, though only 252 of those respondents carried balances on their cards.
Despite seeking thriftier lifestyles and showing more concern about avoiding debt during a weak economy, many respondents either were unaware of opportunities to consolidate credit card balances through loans, considered those options too complicated, or felt the balances they carried did not warrant another loan, the survey found.
As such, consumer-borrowing habits essentially have remained unchanged the past three years despite the growth in the availability of high-value promotional balance transfers, the survey data show.
“The interesting finding is that we’re not seeing any shift in consolidation at all, and that’s right in the face of the aggressive offers being made in the UK toward debt consolidation,” Megan Bramlette, Auriemma director of international knowledge management, tells PaymentsSource.
The percentage of survey respondents using their credit cards to consolidate multiple balances from other credit cards, loans or financial obligations is virtually identical to that of 2008, with 27% of the respondents this year carrying balances saying they used a card for that purpose compared with 26% of 275 respondents carrying balances who did in a similar survey in 2008, Auriemma’s research shows.
“It also really reflects that the consumer is very debt aware right now, and there is more of a movement toward being financially savvy,” Bramlette says. “When is the last time you bragged about how expensive your shoes are? Now you are saying what a great deal you got or that you got something online at a great price.”
The age of respondents was not a factor in determining a likelihood to rely on credit cards to consolidate balances, but a direct correlation exists regarding household income, as 53% of respondents with household incomes exceeding £50,000 (US$79,400 or 56,800 euros) reported that they had performed this activity compared with just 24% of respondents with incomes below £50,000 who did, Bramlette says.
The percentage of 503 respondents who said they would use a credit card to access £5,000 in an emergency increased to 14% in 2011 from 7% in 2008. While a personal loan or a line of credit remained the most popular financial vehicles for emergency funds, there was a drop off in the past three years, with 40% in 2011 saying they would choose those options compared with 51% who did in 2008.
The most surprising survey result, Cardbeat reported, was respondents indicating that repaying mortgage, primary credit card and personal loans are becoming equally important, though mortgage payments remained a top priority. A trend of considering paying off a personal loan before repaying a car loan continued despite unsecured loans having higher interest rates than secured products, the survey found.
“As we concluded back in 2008,” Cardbeat reports, “it appears that many consumers feel more comfortable paying high interest rather than risk their personal property or go through the formality of the process to secure the loan when they need to finance unforeseen expenditures.”
The survey also found that the need for consumer education is an opportunity for UK lenders seeking a growth market, but first they must emphasize the simplicity to consolidate or transfer balances as a way to reduce interest payments.
In another trend noted in the survey report, the percentage of respondents who carried a balance on their credit cards has remained near 50% for about the past 18 months after falling to as low as 39% during the first quarter of 2009.
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