The Government has announced new proposals to ensure that people who are saddled with unsecured debts like credit cards and store cards are given a fairer deal.

Right now, if you have unsecured debt you are at the mercy of the lender. They can change rates and they can even increase credit limits without your consent, both of which could be detrimental to borrowers already struggling with debt and with a bad credit rating.

But that is set to change. Consumer Minister Kevin Brennan says: "Card companies have to get their act together and do more for consumers. The Government is putting forward new measures which we believe will give consumers a better deal."

Brennan says the Government may enact new rules that mean unsecured lenders cannot increase credit limits and cannot increase interest rates without prior consent from the borrower.

Also, the Government wants to make sure that lenders are not allowed to change the rules that set out the order in which debts built up on a credit card are paid off – most credit card companies make customers pay the cheapest debt off first, but in the future this might be reversed, meaning those with unsecured debts will be able to tackle the biggest debts first. There are also plans to make sure people to pay off their debt faster by banning interest-only repayments – servicing a debt rather than trying to pay it off can means years of unsecured financial problems and thousands in unnecessary interest.

Joanne Garcia, head of credit cards at Confused.com says: "Like it or not, a lot of people depend on credit cards, so anything that can be done to protect them from the credit card companies and themselves, is good news.

"If the credit limit is increased or credit card cheques are issued, some people cannot resist using what is on offer. But this can lead to terrible spiralling problems, especially when the interest rates rise, so this move by the government could potentially give more power back to consumers and allow them to regain control over their finances."

The sooner people can be clear of unsecured debt, the better. Debt needn't be a bad thing, but credit card and store card debt is never positive. If these changes do come through it will mean people will be able to pay off debt faster, consolidate easier and will become better credit candidates sooner.

SOURCE: Dep. of Business, Innovation and Skills, Confused.com, 27/10/09

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