UK shoppers spent £18.4bn on credit cards at home and abroad in April up 4.1 per cent compared to the same period last year, according to industry body UK Finance.
The volume of transactions also rose marginally by 1.4 per cent year-on-year to 326.4 million transactions in April.
Over the course of the 12-month period, outstanding balances grew by 9.5 per cent.
The proportion of balances that incur interest, because they are not cleared up to 56 days after making a purchase, fell slightly, however, from 51.3 per cent to 49.6 per cent.
Debit card transactions rose by 5.1 per cent year-on-year to £2.1bn with a total spend of £66bn (inside and outside of the UK), which is 2.1 per cent higher than April 2022.
However, debit card spending overseas came in at £3.3bn which is a fall of 3.7 per cent.
‘Debt crisis’
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial, said: “Credit card balances grew by just under 10 per cent in the year to April, and that’s before the effect of recent interest rate rises have been felt.
“With people struggling with colossal energy and food bills, the economy will really suffer when homeowners start coming off their fixed rates. Then the pain will really hit home. I expect unsecured credit to rise sharply over the next 12 months as the UK spirals into a debt crisis and sharp recession.
Stephen Perkins, managing director at Yellow Brick Mortgages, added: “The increased reliance on credit cards is not surprising given that households have seen every outgoing increase dramatically during the past 12 months, with incomes far from keeping pace.
“The majority of UK households lived close to their means before the cost of living squeeze, so now are living on credit in the hope of coming out the other side.”
Michelle Lawson, director and mortgage and protection adviser at Lawson Financial, said that while credit card debt could be a “good thing” when used “responsibly” she was seeing a lot of people using credit cards to “fund lifestyles”.
“I have seen applicants with more than £50,000 on credit card balances alone, without loans and car finance. Some people then go on to rely on consolidating debt into mortgages, which is all well in principle when rates are low.
“However, with rising interest rates, this will be less attractive and could leave people struggling to service their debt. The levels of unsecured debt with a lot of applicants are quite frightening as it is so much easier to obtain in comparison to mortgages and, in some circumstances, just a click away in their banking app,” she added.
Bank of Mum and Dad may have to step into help credit card balances
Justin Moy, managing director at EHF Mortgages, added that traditionally a “good percentage” of credit card debt had been repaid by a remortgage, so expensive debt was replaced with a cheaper mortgage payment then the “cycle starts again”.
“This is one of the reasons so many borrowers like a short-term deal,” he noted.
“With the recent increase in rates, the reduction in affordability, and the knock-on popularity of product transfers, that whole process of refinancing has come to a sudden halt, and the credit card balances won’t be disappearing soon.
“It’s likely that the Bank of Mum and Dad will need to intervene, protecting their original deposit support by reducing personal debt and credit card balances, allowing borrowers to manage to pay the higher mortgage payments,” Moy noted.
