Sub-prime credit cards are meant as a lifeline for those already financially struggling.

A boost over the finish line, helping you to pay the bills just when you need it. However, research suggest that these cards are drowning people in debt and StepChange believes it’s time we stopped them.

Sub-prime credit cards are generally taken out by people already in debt, sometime without jobs. Frequently they're the only card available to people already struggling.

Although sub-prime card could save your finances if used right, more often they end up sinking struggling people further into debt. According to new research form StepChange debt charity, when it comes down to it, people just don't use them the way they planned.

StepChange chief executive Phil Andrew said: "If people are stretched, financially vulnerable, and sometimes desperate, then of course they’re going to turn to whatever short-term means are available to help them cope.

"Yet far from being a lifeline, sub-prime cards currently are often a very expensive debt trap in the long term – sometimes far exceeding the costs of payday loans.”

How are we using sub-prime cards?

Research form StepChange found that almost four in five of its clients (79%) with a sub-prime card said it had made their situation worse, with nearly a fifth (18%) being unemployed when they took out the card, and 47% were already in financial arrears.

Once they had the cards, more than two in three (68%) said they borrowed more than they expected.

While they're cheap if you pay them off fast, you can be stung with interest of 70% a year if you don't. Andrew said the research suggested that sub-prime credit cards can leave people trapped in a “vicious circle".

It seems that lenders can't be trusted to offer loans responsibly, for that reason StepChange is calling for the regulator to step in.

"Given the strong link between sub-prime credit cards and problem debt, it’s time for the regulator to take specific action in this part of the credit card market," Andrew said.

How can sub-prime customers access finance?

Financial products are available for those with bad credit histories – however they must be used responsibly and ensure that they do not add more debt for the individual. Secured loans can be a sensible option if you are able to secure your loan against something valuable like a house or car, but there are risks involved such as repossession if you cannot keep up with repayments.

Specifically, you can opt for a secured debt consolidation loan which is secured against your home or vehicle and it is an efficient way to collate all your debts (loans, credit cards, bills) and pay them all off in one single loan.

What needs to change?

StepChange is calling on the government and the FCA to step in and regulate sub-prime credit cards to stop vulnerable people falling into more debt.

To fix the problem StepChange is suggesting a number of changes to the current system, including:

  • Increase statutory minimum credit card payments for new cards to the level required to clear debt without excessive cost.
  • Strengthen creditworthiness and affordability assessment rules for revolving credit
  • Compulsory implementation of new tools to make the cost of borrowing more transparent
  • Examine backstop measures to address excessive costs by suspending interest charges for consumers in persistent debt, limit the cost of credit to 100% of the amount borrowed
  • Support those who can afford it to accelerate repayment
  • An end to unsolicited credit limit increases, and require an opt-in system for credit limit increases
  • Explore and act upon consumer harm linked to so-called credit builder products through the recently commenced credit information market study