One in four credit card borrowers has paid their monthly bill late – two-thirds of them in the past year – as more and more people struggle to keep up with their debts, new research shows.
According to price comparison website Compare the Market, less than half of credit card users regularly pay off their balance in full. Rising mortgage or rent, food, energy and fuel costs have increased pressure on household budgets, with the average credit card debt now standing at £1,160.
The UK economy fell into recession in the second half of 2023 as households cut back on spending to tackle struggling finances.
One in five credit card borrowers has only been able to make the minimum repayment on their most recent bill, Compare the Market found.
Credit card holders spent the most on online shopping and holidays, with 16 percent of borrowers applying for a new card before traveling abroad.
Struggle: One in five credit card borrowers has only been able to make the minimum repayment on their most recent bill
According to credit monitoring agency ClearScore, searches for credit cards and loans rose 83 percent between December and January as families tried to get their spending back under control. Andy Hancock, chief growth officer at Compare the Market, says: ‘When taking out a credit card, make sure you don’t borrow more than you can afford.
“It’s worth paying off your credit card balance in full each month to avoid paying interest.”
Credit card APRs have soared in the past year, leaving those unable to pay off their balances in full trouble with the highest interest rates since records began in June 2006, according to an analysis by interest rate comptroller MoneyfactsCompare .
A typical new credit card deal now has an APR of 34.7 percent, up from 30.3 percent a year ago.
A borrower with an average credit card debt of £1,160, who only makes the minimum repayments each month and is charged a typical APR, would now have paid £943 in interest by the time their balance is paid off.
Four in ten borrowers now believe that the duration of a 0 percent offer when transferring their balance to another card is an important feature when choosing a new credit card.
And 21 percent say the ability to transfer the balance from an old credit card is important, as more than one in three previously used a balance transfer card to avoid paying high interest rates.
When looking for a new card, you should use an eligibility check to determine if you’re likely to be accepted before formally applying, because a rejection can hurt your credit score.
Check whether cards have annual fees and charges, and mark the end of an introductory interest rate on your calendar to avoid receiving a shock bill.