Peak ‘Default Month’ on the way

Posted in 'Dealing with Debt' by Richard Catlin

13 January 2010

The financial hangover caused annually by Christmas spending is set to kick in with a vengeance over the next few weeks, as the dreaded first credit card bills of the New Year make a resounding thud on doormats across the UK.

The recent awful weather has not helped either, with the average heating bill in January estimated to be £70 higher than usual as people battle to stay warm in the Arctic conditions.

February has long been recognised as the month when more consumers miss making payments on existing borrowings – and in particular on credit cards - than at any other time of year. Despite lenders repeatedly telling customers struggling to meet repayments to get in touch and discuss the problem, many people still choose to ignore the issue when they can’t quite afford larger-than-average bills.

This often seen head-in-the-sand human reaction will result only in lenders starting collections and recovery action, which by law is always preceded by the issue a default notice. If ignored, as soon as just 28 days after the date of the default notice, a default is recorded on a credit file and stays on there for 6 years. Many credit scorecards put defaults on a par with county court judgments – so defaults can significantly damage consumers’ credit ratings for a long time.

The situation this year could be even more exaggerated, as many collection departments are likely to be over-stretched, and are already operating on very strict operational budgets. Under pressure, most are unlikely to give much grace when it comes to starting recovery procedures against consumers who appear to have gone to ground. In contrast, if you are struggling to pay, and if you proactively get in touch with your lender and seek time to pay, there are pressures on lenders to be more sympathetic in current economic conditions.

One of the options of managing debt at this time of year is to take out a new card while your credit rating remains reasonably strong, and then switch the balance - or part of the balance - of your existing card over to the new card, well before the payment due date.

Switching an existing balance to a new card can also help to reduce your monthly repayments significantly, without running the risk of damaging your credit rating. The easiest and quickest way of seeing which credit card deals you’re likely to be approved for is by using your free credit score to find out which lenders are most likely to say ‘yes’.

On average, consumers save around £400 a year in interest payments by switching to a better deal – whilst protecting their credit rating at the same time.

If you do this, don’t forget to cut up the old card so that the temptation to run up more credit is removed altogether.

Check your credit score for free.