Credit Card Debt and the Costs of Borrowing Are on the Rise
Personal_Finance / Credit Cards & Scoring Jun 19, 2018 - 03:11 PM GMTThe quarterly Moneyfacts UK Credit Card Trends Treasury Report, which studies the UK personal finance market (Unsecured Personal Loans, Credit Cards and Overdrafts), reveals that the average purchase and cash rates on credit cards have risen during Q2 2018, as has the average cash withdrawal fee. This comes at a time when credit card borrowing is on the rise, up by around £3 billion year-on-year, while £318 million of credit card debt was written off in the first quarter of 2018*.
It is more likely than not that interest rates will rise in the future, and with growing economic uncertainty, these figures alone should be a cause for concern for any consumer with mounting credit card debts.
Rachel Springall, Finance Expert at Moneyfacts, said:
“Consumer debt on credit cards is on the rise and so is the cost, in the form of interest. As per the latest statistics from The Money Charity, the total credit card debt in the UK sits at £71.1 billion, which translates to £2,613 per household on average (up from £68.08 billion, or £2,521 per household, a year prior). In addition, our own statistics show that it’s not just the average credit card purchase rate and cash per annum rate that increased over the last quarter, as cash withdrawal fees rose too.
“The rise in consumer debt is cause for concern, particularly as £318 million was written off during Q1 2018. So, while many card providers are poised to offer introductory interest-free deals aimed at customers planning a purchase, balance transfer or money transfer, customers could nonetheless struggle to repay their debt before interest applies and, in the worst circumstances, require a write-off. Indeed, UK Finance found that 55.6% of credit card balances were bearing interest in Q3 2017.
“To make matters worse, the average credit card APR rate has hit 23.1% over the last quarter (including card management fees), with the average purchase per annum rate and average cash per annum rate rising also. In Q2 2018, Bank of Scotland, Halifax, HSBC and Lloyds Bank increased the interest rates charged on standard purchases and cash by 1%, while Tesco Bank increased the cash withdrawal fee by 0.99% on its entire credit card range.
“These increases might seem small, but it’s worth noting that all these changes took place over the last three months alone, and included activity from some well-known brands. It’s unsettling news at a time when consumers would not be expecting interest rates to rise, especially if credit cards are their lifeline.
“Clearly, there are many consumers out there struggling to cope, and while credit cards are considered a common way to carry debts or switch them to an interest-free deal, this is only a temporary fix that simply buys a little more time to pay debts back. Without diligence, a growing debt could overwhelm customers and dent their chances of being approved for important financial milestones such as a mortgage. If in doubt, customers should seek out help, for instance a debt charity like StepChange, for vital support.”
*Borrowing figures acquired from The Money Charity.
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