Debt consolidation ma account for continued low credit levels

Credit card and other borrowing levels remain low, according to a new study on lending.

The Finance and Leasing Association (FLA) has drawn this conclusion after figures on its members' lending revealed the year to August 2011 saw a two per cent drop in overall consumer borrowing, which totalled £51.3 billion over the course of the year.

Car finance was the only form of credit to see an increase – up one per cent – as other areas saw a decline.

Among credit cards and personal loans, the dip was two per cent, which may suggest consumers using these means to borrow in the past have been looking to consolidate borrowing by trimming balances and opting for early settlements where possible.

Storecards saw the greatest fall in usage, with lending down 20 per cent, while second mortgages dipped ten per cent and store instalment credit by eight per cent.

FLA head of consumer finance Fiona Hoyle described the figures as showing "continued weakness in the credit markets" and argued against any legislative changes that might make it harder for consumers to borrow.

However, paying off debt and bringing down the amount owed is something many people have advised will be a good thing for consumers.

Prime minister David Cameron came close to stating this in his Conservative Party conference speech recently, but altered the wording to say that people already are reducing balances, rather than saying everybody should.

The original transcript of the speech read: "The only way out of a debt crisis is to deal with your debts. That means households – all of us – paying off the credit card and store card bills."

By James Francis