New data reveals credit card borrowing is surging in the UK right now, with plastic used for £1.5 billion worth of purchases in February alone.
So, what’s behind this trend? And are credit card borrowers at risk of greater debt problems in future? Let’s take a look.
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What did the data reveal about credit card borrowing?
According to Hargreaves Lansdown, UK consumers borrowed £1.5 billion on credit cards during the month of February. This is the biggest monthly rise in credit card borrowing in 30 years, and it represents a 9.4% rise in annual card borrowing.
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, suggests this is a worrying trend given that post-pandemic borrowing started to calm prior to February. She explains: “Price hikes took a horrible toll in February, as we borrowed an astonishing £1.5 billion on credit cards during the month. This is the biggest monthly hike in card borrowing in at least 30 years.
“After a year of repaying debts, followed by a year of modest increases in borrowing, this was an eye-watering increase, and could be a worrying sign of things to come.”
Coles also explains how the hike in credit card borrowing could be attributed to piggy banks running dry. She explains: “While overall we continued to save, behind these figures will be people who have eaten their way through their lockdown savings and, faced with alarming price rises across the board, they’re turning to credit cards.”
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What is the danger of credit card borrowing?
Used correctly, credit cards can be the cheapest possible way to borrow. That’s because there are a number of 0% purchase credit cards out there that offer interest-free spending.
So, if you use these cards correctly – by making at least the minimum payment during the 0% period, never going over your credit limit and clearing your balance before the interest-free period ends – it’s possible to borrow on plastic without it costing a penny.
However, a rise in credit card borrowing is unlikely to signal consumers are signing up for credit cards to borrow for a planned, budgeted-for purchase. Instead, the trend is more likely to suggest struggling consumers are turning to plastic as a last resort. Right now, the UK inflation rate stands at a whopping 6.2%.
Sadly, consumers struggling with rising prices are very much at risk of falling into a debt spiral. This is where debts become so large that keeping up interest payments becomes a real challenge. As a result, debts can easily get out of control.
The risk of a debt spiral increases if consumers use credit cards to overspend. As Sarah Coles explains: “Enormous numbers of people have cut their costs as much as they feel able to, and are still spending more than they earn. Credit cards feel like a solution in the short term, but when you’re having to pay interest on your debts, it makes it even harder to make ends meet.
“At times of high inflation, the risk is that this [overspending] pattern will grow. Not only do prices rise even further, but people who need to make a big purchase worry that by putting it off, it’ll just get even more expensive. As a result, they end up borrowing to buy now and adding to the pile of debt.”
Are you struggling to repay credit card debt?
If you’re struggling to repay credit card debt, then there are steps you can take to cut what you owe, from focusing on debts with the highest interest rate to asking your lender for help. If you’re concerned about your borrowing, take a look at our article that explains how to pay off credit card debt.
It may also help to take a look at the six best resources for debt advice in the UK.
