Credit cards can be a useful financial tool, but used incorrectly, they can be quite destructive to an individual’s personal finances. The amount of credit card debt across the UK, along with supporting statistics, can give us insight into how Brits are using their credit cards.
Total credit card debt was £72.1 billion at the beginning of 2020, down slightly from £72.4 billion in 2019. That was the first decline in credit-card debt since 2013. Debt had dropped steadily up to 2013 — a result of individuals reducing debt following the Great Recession — but then began a steady climb in the years following 2013.
Following along with total credit card debt, the average credit card debt per household fell in the years leading up to 2013, but rose for the nine years that followed. The most recent level of £2,592 from the beginning of 2020 was a slight decline from £2,601 at the start of 2019.
Interest rates on credit cards tend to be much higher than other forms of lending. And in recent years, rates have seen a steep rise. At the midpoint of 2018, the average representative rate stood at 18.26%. Roughly two years later, the representative rate had risen more than two percentage points, to 20.65%. This makes it especially important that consumers be wary of carrying debt on credit cards at standard rates.
Part of the reason for high interest rates on credit cards is the fact that banks regularly write off debts they won’t be able to collect. In the wake of the Great Recession, write-offs spiked, and in 2010, banks wrote off more than £2 billion in a single quarter. In recent years, write-offs have fallen to much lower levels. In the quarter ending 30 March 2020, banks wrote off £339 million.
These lower levels of write-offs make banks more profitable on their credit-card lending, but also encourage higher competition in the industry and often better deals for consumers, including longer 0% introductory offers aimed at attracting new customers.
There aren’t drastic differences in the percentage of UK residents with non-property financial debts by region, with most regions showing around half of residents holding some form of financial debt. These debts include credit card debt, but also other forms of financial debt, like hire purchases. The East Midlands had the highest level of indebted residents, with 53% holding non-property financial debt, while the West Midlands had the lowest, at 45%.
The percentage of residents that see their financial debts as a “heavy burden” varies more by region. While only 8% of those in Scotland see their financial debts as a heavy burden, 22% of Londoners feel a heavy burden from their financial debts.
When looking at non-property financial debt by age, there is a big jump in the percentage of individuals with this type of debt between the 16-24 age range and the 25-34 age range. Only 23% of those in the 16-24 age range have non-property financial debts. That jumps to 51% for the 25-34 age group, the highest of any age group. In older age groups the percentage of individuals with these debts falls steadily, until it reaches a low of 15% for those 65 and older.
In contrast to the high percentage of individuals 25-34 that have non-property financial debts, only 13% find those debts to be a “heavy burden”. That’s similar to the 16-24 age group (12%) and the 35-44 age group (13%). The feeling of being heavily burdened by financial debt peaks for the 45-54 age group at 17%, but then steadily declines to a low of 7% for those 65 and older.
The statistics above give us a view on the levels of credit card debt in the country, as well as how consumers feel about the debts that they hold.
Looked at in the aggregate, rising credit card debt can actually be a sign of an improving economy, as it signals that consumers are more confident about the future and borrowing more. It is also likely a signal that less debt is getting written off by banks.
However, it’s important to weigh that economic signal against the fact that interest rates on credit cards are typically very high. Taking on and holding credit card debt can be a burden on households and lead to financial insecurity. For that reason, it’s important that consumers understand credit cards well, and understand both the advantages they have as well as the risks they pose.
We have endeavoured to use only high-quality primary sources for this research, and have cited sources with each graph. Some of the statistics require calculations on our part and may therefore not match exactly other sources of the same information (average credit card debt per household, for example, relies on matching up-to-date figures for both total UK credit card debt and the number of households in the UK). Key sources include the Bank of England and the Office for National Statistics.