Britain owes £72.5bn on credit cards as households pile on debt despite fears for economy

Consumers add extra £400m to credit card balances in November, Bank of England figures show

Ben Chapman
Friday 04 January 2019 22:08
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What to do if bailiffs come to you house: Advice from StepChange Debt Charity

Britons owe a total of £72.5bn on credit cards with £400m added to balances in November alone, new figures show.

Each household in the UK now has an average of £2,688 unpaid on credit cards, one of the most expensive means of borrowing, as experts warned more and more families were being left with unmanageable piles of debt.

While the rate of debt growth has slowed, there was still an annual increase of 7.9 per cent – despite fears of economic turmoil in the coming months due to a potential no-deal Brexit.

The total, published on Friday by the Bank of England, is 24 per cent greater than it was on the eve of the financial crash, and consumers are paying off their cards at a higher average level of interest than in 2008. When adjusted for inflation, credit card debt is fractionally below a peak reached in early 2010, as the country emerged from one of the deepest recessions in its history.

People with low incomes or living in poverty are turning to credit cards because of their heavy marketing and easy availability, according to David Steele of The Money Charity.

When personal loans are added in, each UK household has almost £8,000 of outstanding consumer credit.

The Money Advice Service (MAS) estimates that 8.3 million people in the UK are over-indebted, and that 22 per cent of UK adults have less than £100 in savings, making them highly vulnerable to a financial shock such as losing their job or incurring unexpected bills.

The precarious position of so many households could pose a wider threat, according to the Bank of England, which warned more than a year ago that banks were in danger of underestimating the risks they face from being too lax in lending to consumers.

If the economy were to enter a new downturn, lenders could incur £30bn of losses on their lending on credit cards, personal loans and for car finance, the bank said in July 2017.

But consumer credit, which includes credit cards, store cards, car finance and other loans grew 7.1 per cent in the year to the end of November to £215.4bn.

Despite ongoing fears about the future of the economy as the UK prepares to leave the EU, Britons have increased their total credit card debt in every month since July 2013 as wages have lagged behind the rising cost of living.

Earnings growth picked up to the highest level for a decade in the final quarter of 2018 but this has done little to make up for 10 years of wage stagnation that has left average inflation-adjusted earnings still languishing below their pre-crisis levels.

Sue Anderson of StepChange, which provides free advice for those facing debt problems, said credit cards are the single most common issue the charity encounters.

“More than two-thirds of people we helped in the first six months of last year had credit card debt, with an average of around £7,600 on their outstanding borrowing on cards,” Ms Anderson said.

“Credit cards can be useful and convenient, and when used as originally intended for short-term purposes, can be a helpful way of timing payments.

“But if borrowing builds up without being paid back on a monthly basis, it can become expensive and increasingly difficult to pay off – which is why the regulator is now requiring firms to take steps to help their customers address persistent credit card debt. If you are struggling to manage, seek free advice from a reputable debt charity.”

The figures highlight a divide in the UK between those able to borrow at close to record-low rates against the value of their homes and others pressured into taking out high-cost credit in order to make ends meet.

While interest rates have remained close to historic lows as the economy continues to grow slowly, the average APR for credit card lending was 18.5 per cent in October 2018, higher than the 15 per cent seen in 2006 before the financial crisis.

What to do if you want to reduce your credit card debt

“Don’t panic,” says David Steele of The Money Charity. “Don’t get pressured into doing something before you have had time to take advice. There are usually managed ways out.”

Contact StepChange on 0800 138 1111. Their professional advice is completely free and the line is open between 8am and 8pm Monday to Friday, and 8am and 4pm on Saturday.

Before you call, fill out StepChange’s online budget form which helps their advisers understand your particular situation.

The charity offers a number of options to help, including debt management plans which allow you to lower your monthly repayments.

Other tips from The Money Charity:

• Pay off more than the minimum amount if you can
• Some credit cards let you transfer the balance from another card. Transferring a debt from a card with a high rate of interest to one with low or 0 per cent interest could help you pay off the debt faster
• Make an assessment of all of your borrowing across cards, loans, overdrafts etc. Make sure you are paying off those with the highest interest rates and charges first
• When charges are taken into account, overdrafts can sometimes be more expensive
• However, remember that credit cards should not take priority over debts such as council tax, rent or utilities, where the consequences of not paying may be worse

Further advice is available from:

• Citizens Advice
• StepChange
• Money Advice Service

A January 2018 report from the Institute for Fiscal Studies (IFS) found that one in four of the UK’s poorest households are in arrears with debts or are spending a quarter of their income or more on debt repayments.

Borrowers could face a further squeeze with the Bank of England expected to raise its benchmark interest rate further this year, a move that will probably be passed on to consumers.

However, millions of consumers do not pay any interest on their credit card debt, either because they clear their balance each month or because they have secured a 0 per cent deal. Just under 45 per cent of credit card balances pay no interest, according to UK Finance, an industry trade body.

Those paying high interest rates may be able to transfer their balance to a cheaper card or consolidate their debts into one loan with a lower rate.

The average APR for a £5,000 personal loan in October 2018 was 7.7 per cent while for a £10,000 loan it was 3.8 per cent.

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