Being debt free ‘better than cheap credit’

It is better if prices are lower and people can be debt free, rather than allowing more access to cheap credit, an economist has said.

While the government has been looking at caps on credit card rates and encouraging credit unions, it has the wrong priorities when it comes to trying to limit personal debt, according to economist and managing director of Jonathan Davis Wealth Management Jonathan Davis.

He said: “The solution to household problems is not more debt, whether it is low cost or high cost.

“The solution is lower prices and lower prices of housing, lower prices of petrol, heat, light and food – in other words, a lower cost of living.”

Such a view would suggest the key priority is not to offer the chance for people, to borrow at a lower rate, but to take on less debt in the first instance.

It comes at a time when Consumer Prices Index inflation is officially running at 4.4 per cent, more than double the Bank of England‘s target rate set by the chancellor.

Mr Davis was making his comments in the wake of the publication of a report by Consumer Focus analysing the comparative systems of credit available in other countries, such as France, Germany and Australia.

It stated that Britain has one of the world’s most extensive sub-prime markets for credit – which include very expensive options such as payday loans, as well as the fact that credit card rates are capped in Germany and France, while Australia is considering such moves.

The report claimed the best solution was for the government to encourage the expansion of schemes offering more low-cost credit.

By James Francis