One in four credit card borrowers have paid their monthly bill late – two-thirds of them in the last year – as an increasing number struggle to keep up with their debts, new research reveals.
Less than half of credit card users regularly pay off their balance in full, according to price comparison website Compare the Market. Rising costs of mortgages/rents, food, energy and fuel have put increased pressure on household budgets, with the average credit card debt now reaching £1,160.
The UK economy entered recession in the second half of 2023, as households cut spending to cope with their financial difficulties.
One in five credit card borrowers have only been able to make the minimum payment on their most recent bill, Compare the Market finds.
Credit card holders spent more on online purchases and vacations, and 16 percent of borrowers applied for a new card before traveling abroad.
Struggle: One in five credit card borrowers have only been able to make the minimum payment on their most recent bill
Searches for credit cards and loans spiked 83 percent between December and January as families tried to get their spending back under control, according to credit-checking firm ClearScore. Andy Hancock, chief growth officer at Compare the Market, says: “When taking out a credit card you need to be careful not to borrow more than you can afford.
“It’s worth paying off your credit card balance in full every month to avoid paying interest.”
Credit card APRs (annual percentage rates) have soared in the past year, hitting those who can’t pay their balance in full with the highest interest rates since records began in June 2006, shows analysis by rate examiner 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 level of £1,160 who only makes the minimum payment each month and is charged a typical APR would now have paid £943 in interest when paying off their balance.
Four in ten borrowers now believe that the duration of a 0 percent offer when transferring their balance to another card is a key feature when choosing a new credit card.
And 21 percent say simply having the ability to transfer a 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 checker to determine if you are likely to be accepted before you formally apply because a rejection could damage your credit score.
Check to see if cards have annual fees and charges and mark the end of any introductory interest rates in your journal to avoid receiving a surprise bill.