David Prosser: The slippery road to a debt disaster

Outlook: Switching home loan debt on to plastic is a short cut to financial disaster
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New research from Shelter, the homeless charity, should give us pause for thought, suggesting, as it does, that as many as 1 million people have used their credit cards to pay mortgage bills or rent demands in the past year.

The charity professes itself shocked – and you can see why. The cost of credit card interest is, on average, something in the region of three times the price of a mortgage. So switching home loan debt on to plastic in this way is a short cut to financial disaster.

In the absence of really disastrous news, we are becoming somewhat complacent about the impact of the recession on families' finances. Unemployment has not risen as quickly or as far as many warned it would during the downturn and forecasts of the number of home repossessions have been scaled back several times. Happily, fewer people than expected have found themselves unable to keep on top of mortgage repayments.

Shelter's research, however, suggests there is much more pain to come. While not everyone who uses their credit card in this way has long-term financial problems likely to lead to more serious difficulties, you would have to be relatively desperate, at least in the short-term, to go down this route. Many of those people are likely to end up defaulting on their credit card bills, or on their mortgages, or both.

Part of the reason repossessions did not rise more sharply last year was lenders were told to be more understanding and less aggressive. The other factor was that for people remaining in work, disposable income increased, with interest rates at record lows and tax cuts yet to kick in. 2010 will not be so benign.