On the Money: London is most drastic for plastic as debts mount

London has been named the credit card debt capital of the UK. It tops a new list of debt hotspots ahead of Glasgow, Hatfield, Edinburgh and Aldershot.

The research by Experian reveals that people in areas such as Liverpool Street and Bishopsgate, the West End, Cheapside, Wandsworth–Clapham Junction and Putney are increasingly reliant on credit cards to cover living costs and large purchases.

They tend to be young renters who have the highest levels of expenditure, debt and social aspirations.

But living on plastic, known as persistent debt, can be the first step on the road to financial disaster.

It can leave people unable to cope with a sudden expense or lifestyle change, such as losing their job.

With an estimated three million people across the country reckoned to be in persistent debt, the City watchdog last month proposed new rules to help.

It pointed out that credit card firms don’t step in to help people who are struggling with large balances and high interest charges, which add to their debt woes.

There’s one simple reason for that, according to the Financial Conduct Authority. People who live off plastic and don’t repay the balance every month generate huge profits for plastic card companies.

“Persistent debt can be very expensive, costing customers on average around £2.50 for every £1 repaid,” warns Andrew Bailey, chief executive of the Financial Conduct Authority.

The regulator wants firms to help. It plans to force them to prompt those who’ve been in persistent debt for 18 months to make faster repayments, to help reduce the amount they owe and cut their interest charges.

Ultimately firms will be forced to help people repay their balance by reducing, waiving or cancelling interest or charges.

The debt charity StepChange warns that credit card debts remain the biggest problem for its clients, with the average debt more than £8000. Of course, millions of people happily use credit cards as a convenient way to pay, but problems can quickly start when the short-term borrowing becomes long-term and expensive debt.

The Labour party has proposed giving borrowers breathing space to help them repay their debt. That would involve such things as freezing interest charges.

Such a move would make a huge difference, says Mike O’Connor, chief executive of StepChange.

“We need policies like breathing space to help people to manage periods of financial difficulty,” he says, adding: “And we need to help families build up savings to help insulate them from problem debt.”