News & Views - Savantor

Credit card debt levels

Wednesday, 16 January 2013

Recent studies have highlighted the extent to which cardholder debt has risen in the UK. Never mind still paying off Christmas 2012, almost one in five consumers have yet to pay off debts from Christmas 2011, according to new research from uSwitch.com. One in five borrowers are starting 2013 with over £5,000 of debt on their credit card. Christmas may be over for another year, but for the 59% of consumers who bought their presents on plastic in December, the debt hangover is likely to linger on.

The research also showed that:

        53% of consumers expect to take a year or more to pay off their credit card debt,

        15% say that it may take as long as three years to settle their balance.

        7% can't imagine clearing it at all.

        However, only 29% of consumers cut back on costs this Christmas.

        48% spent roughly the same as last year

        23% consumers spent more this year than last, with one in ten spending over £1,000.

Further research by Which? on 2,000 people throughout Britain showed that 46% used overdrafts, store cards and payday loans amongst others to cover the costs, while 36% used their savings. Around 25% said that the only way they could afford Christmas was by using bank overdrafts and credit cards. Of the people who used their savings they typically took out £380, while £301 was on average gained from those utilising credit. According to the British Bankers' Association families are paying back "virtually as much as they borrow" and this is despite an increase in mortgages on properties and people spending more on credit cards. The financial information company Markit produced similar results to those found by Which? Markit found that 75% of households expect their financial situation to become worse, or stay the same, over the next year.

It seems to be that a trend of last year with cardholders seeing the need to pay off their card debt is continuing and likely to do so for the next 12 months. That coupled with the recent glut of large retailers going into administration doesn’t paint a happy picture for the UK economy in general or card spend in particular. However, one bright note in the latest figures from UK Cards Associations shows year on year spend from November 2011 to November 2012 on debit cards up from £27.4bn to £28.7bn and on credit cards from £12.9bn to £13bn.

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