The situation has been made worse by the new rules on bankruptcy, which make it easier to default on debt without the stigma that used to be attached to declaring yourself insolvent. Naguib Kheraj, Barclays finance director, said, "Clearly, it's more acceptable for people socially to default on their debts," adding that, while the number of people in difficulty was stable, the average balances of defaulters were rising and the recovery rate - the amount paid back to the bank - was falling.

Moneyextra's latest figures show the average credit card balance transfer in May rising to £2,656, from £2,459 in April. The ease of obtaining credit is clearly one of the factors to blame for the rising number of defaults. And it is not just the young and foolish who are finding it hard to pay the bills. According to the CCCS, debt levels are rising fastest among the over-60s. While the 40 to 59 age group had the biggest debt, averaging £34,456, the retired or nearly retired saw their debt levels soar by 25% to £33,658.

Credit card debt is largely to blame. A CCCS spokesman said, "Many of these older borrowers have debt on cards because they have relied on credit cards while they were working, and have continued to use them in retirement despite a drop in income to meet the eventual bill."

Customers now have a wide array of cards to choose from, with most banks offering a card under their own brand, although many have now outsourced the accounts to big card operators such as the US group MBNA, which entered the UK in the early 1990s. The market is keen, and canny cardholders can play their cards to take advantage of 0% balance transfers, 0% purchase deals, cashback, loyalty points, low interest periods and many other marketing ploys.

While there are many cards that offer poor deals and are an expensive way of borrowing, the only way of deciding if a deal is good is if it is good for you. For instance, anyone who pays their balance off in full each month can afford to ignore a high interest rate, while someone with a large debt should ignore loyalty points and perks and concentrate on how much the loan is costing them.

The market is becoming much more competitive, as the card companies' margins are squeezed. Already most cashback deals have been withdrawn, and charges are being imposed for balance transfers. Watch out for lower credit limits - or lower limits on each card, if you hold more than one. As bad debts start to cause the banks pain, they are starting to tighten up on their lending criteria.

It's all a long way from Flatbush National Bank of Brooklyn in New York, where John Biggins invented the Charge-It voucher system in 1946, the predecessor of the plastic credit card.

BankAmerica may have pioneered the bank credit card in the US a decade later, and Barclaycard brought the idea to Britain, but the fantastic plastic only took off on an international scale in 1968, when the Visa network, which allowed merchants to accept any member bank's card, was established. Visa's founder was Dee Hock -and in hock is what we all seem to have been ever since!

15 July 2008 © Moneyextra.com

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