Credit card debt in the UK has been steadily climbing since July 2013, with Britain as a whole owing £72.5bn on credit cards according to statistics released by the Bank of England. A combination of austerity and wage stagnation over the past ten years means that the amount of borrowing on credit cards has continued to climb, reaching an annual growth rate of 7.9% in November 2018.
The stats show that each UK household has an average of £2,688 unpaid on credit cards, with the Money Advice Service saying that 8.3m of us are over-indebted. Meanwhile, interest rates have continued to climb over recent years, despite the Bank of England base rate remaining at historically low levels. The average APR stood at 18.5% in October 2018, compared with 15% in 2006.
To put this into perspective, if you owed the average balance of £2,688 and had a credit card with an APR of 18.5%, if you paid £100 off your balance each month, you would not clear your debt until December 2021 and you would incur interest charges amounting to £725. In the same scenario but played out with an APR of 15%, the debt would be cleared two months earlier and the interest costs would be £559. Not only are Britons borrowing more, but they are doing so at a higher cost, resulting in credit card debt piling up.
One of the ways to tackle credit card debt is to find a balance transfer deal. These are credit cards that allow you to transfer an existing balance from another card or several other cards, to consolidate your debt. Balance transfer cards typically offer a set introductory period over which you are charged no interest on your balance.
If you take the example above of a balance of £2,688 and repayments of £100 per month, if you secured a balance transfer card with an introductory 0% period of 30 months, the balance of £2,688 could be paid off by April 2021 with no interest charges incurred. However, most balance transfer cards with a long introductory period charge a balance transfer fee. If the fee were 3%, you would be required to pay £80.64 to transfer your balance. There are fee-free options out there, but they usually have shorter 0% introductory periods.
Based on the trend of the past ten years, the likelihood is yes – credit card debt is likely to continue to increase. With the economic uncertainty surrounding Brexit, it is unlikely that the key factors for increased debt (austerity and wage stagnation) will change any time soon. The Bank of England is also expected to raise the base rate further this year, something which could then be passed on to consumers in the form of increased interest rates.
Some borrowers, however, are being savvy. According to UK Finance, for just under 45% of credit card balances no interest is paid, as borrowers are either clearing their balance in full each month or have secured a 0% deal – something to think about if you are one of the 8.3m Britons currently over-indebted.
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