The amount spent on credit cards rose by a staggering £700 million in August. The worry of soaring living costs, energy bills and fuel pushed the annual growth rate in spending on credit cards to 12.9%. Bank of England data suggests this is the highest level since 2005, as households rely heavily on borrowing in order to live.
Just this year, credit card balances have jumped to £5.9 billion. This is an annual growth rate for all consumer credit of 7.0% in August. Economists say this is due to households struggling to make ends meet, using credit to pay for essentials such as food.
Not only are households facing the increasing need to use credit cards to pay for everyday expenses, but the cost of using credit cards is becoming more expensive, with the average interest rates increasing to 18.66% in August. For those who have no choice but to use a credit card to feed their family or keep the lights on, this adds further stress to an already difficult time.
Similarly, households are continuing to deposit less money into their bank accounts than they did before 2020. This suggests people are using cash more frequently, perhaps in a bid to budget more carefully when it comes to shopping.
Jasmine Birtles, our founder and CEO at MoneyMagpie.com, comments:
“It’s a shock to hear that credit card borrowing this year is already equivalent to the last 5 and a half years combined…and that’s only nine months. I think it shows a mix of factors: it’s partly high because many families are not coping with their monthly bills and are putting it on credit but I think it also shows that many of us have continued the lifestyle we had before, not realising that prices have all gone up and it’s costing more to live even like we did last year.
“Credit card borrowing is an expensive way to get quick cash if you’re not able to pay it off within the interest-free period, so I recommend that anyone who is finding themselves routinely putting payments on credit cards and then not being able to pay off the full amount, takes some time this weekend to get on top of their money, do a budget and work out what spending should be sacrificed in order to keep out of debt as prices rise. If this seems impossible then get help from the experienced debt advisors at one of the free debt charities like Community Money Advice, Christians Against Poverty or StepChange.”
Laura Suter, head of personal finance at AJ Bell, comments:
“Credit card borrowing remains at a 17-year high as more people turn to plastic to cover rising costs. The nation added another £700m to their credit card debt in August, taking total outstanding borrowing on credit cards to £5.9bn in the year to date. This is more than double the pre-pandemic total for the same period and is equal to the total net credit card borrowing for the previous five and a half years combined*.
“Once personal loans and car finance are added into the total figure, the nation is sitting on an extra £10.5bn of borrowing this year. But this figure hides the true scale of the nation’s debts as it doesn’t include Buy Now Pay Later borrowing and more informal loans between family and friends. One saving grace is that despite the backdrop of a rapidly rising Base Rate, debt isn’t actually getting much more expensive yet. Rates on personal loans actually fell in August and are still in line with pre-pandemic levels, while credit card interest is only marginally above the pre-pandemic rate.”