Credit card debt grows at fastest rate since the financial crash
FAMILIES are racking up credit card debt at the fastest pace since the financial crash, the Bank of England revealed yesterday.
Its latest figures showed households slapped another £500million on plastic last month, meaning they now owe almost £66billion. This equates to more than £2,400 for every household in the country.
The total amount owed on credit cards has jumped 8.4 per cent over the past year, the highest annual growth rate since November 2008.
Experts say households have been taking advantage of low interest rates to splash out on holidays, clothes and cars. The borrowing binge has helped fuel a spending boom on the high street since the EU referendum.
Some economists welcomed the figures as evidence that households are growing in confidence and are more certain they can repay what the owe. But debt charities described the figures as ‘ frightening’ and raised concerns that households are racking up debts they will never be able to pay back.
Consumer campaigners also raised fears that banks are fuelling the credit boom by offering tempting ‘ zero per cent’ introductory offers and hammering customers with hefty charges.
Peter Tutton from StepChange Debt Charity said: ‘Credit cards are already the most common type of debt we see and we are concerned that increased lending could see even more people fall into problem debt.
‘The worry is that we return to the bad old days we saw prior to the credit crunch where too many households were able to build up unsustainable balances. The sad reality is that increased consumer borrowing will, for some people, turn into the nightmare of problem debt.’
Stuart Carmichael of the Debt Support Trust said: ‘It’s frightening how quickly credit card debt is increasing. The sad thing is there are people out there in serious financial difficulty who
‘Unsustainable balances’
should never have been given the credit in the first place.’
Borrowing on credit cards has picked up since the Bank of England cut interest rates in August from 0.5 per cent to a fresh low of 0.25 per cent. This marked its latest effort to stimulate the economy by encouraging households to spend money rather than hoard it in savings accounts that pay miserly returns.
But consumer groups warned that borrowers lured in by ‘interest-free’ credit card deals are also being hit with hefty fees.
Lenders are offering deals that allow you to transfer debt to a credit card and pay no interest on your debt for up to three and a half years. These cards are very popular with people struggling to pay their monthly credit bills but research from data firm Moneyfacts.co.uk shows some of these cards are loaded with high costs.
For example, Sainsbury’s is offering 0 per cent for 42 months to customers who move existing debt on to its balance transfer credit card. However, it involves paying a hefty 4 per cent fee upfront on the debt they transfer, meaning they are hit with a £120 bill if they transfer a balance of £3,000.
Charlotte Nelson, of Moneyfacts.co.uk, says: ‘These large fees can turn what appears to be a fantastic offer into an expensive one from the start. For example, opting for the longest deal on the market would cost £75 more in upfront fees than opting for a card with just five months less on its interest-free term.’
A Daily Mail investigation in May found banks were using a string of underhand tactics to lure borrowers into spending on expensive credit cards. These included hiking customers’ credit limits so they could spend more.