Credit card debt in the UK is now growing at the fastest rate since 2006. That’s according to Bank of England stats published last month.
The Bank of England figures from 31 May 2017 show that UK consumers borrowed £68.1bn in April. This was an increase of 9.7% on the same time last year. And what’s more, it means that credit card debt is growing at its fastest rate since February 2006.
Let’s take a look at why UK credit card debt is rising and what this could mean for consumers.
Rising credit card debt
One reason why credit card debt might be growing quickly is because lenders are now offering more attractive deals. Stats from Moneyfacts show that the average introductory credit card deal now lasts 381 days. This is a huge increase from 279 days this time last year. The longest 0% interest introductory deal available is 31 months – a year ago, it was 27 months.
This increase in 0% interest deals to encourage consumers to borrow could be one reason why credit card debt is on the rise.
It’s important that customers understand that these introductory offers don’t last forever. And when they expire, borrowing on credit cards can get quite a bit more expensive. If consumers don’t realise this, their borrowing could end up costing more than they expected.
And if interest rates start to increase, this could put extra pressure on customers. The Bank of England’s base rate has been at a historic low of 0.25% since August 2016. If this goes up, borrowing could get more expensive too.
What the FCA is doing
According to the FCA, 3.3 million people have credit card debts they might never be able to clear. This figure shows that for some, credit card debt is no longer a short term way to borrow money. And some of these are likely to struggle the most if interest rates rise.
Because of this, the FCA is now proposing new ways to help customers with persistent credit card debt. This addresses how credit card companies should treat customers who are struggling.
One of the proposals is when a customer has had credit card debt for more than 18 months, their card provider should encourage them to make faster payments to clear this. This could help reduce the amount of time that customers stay in credit card debt. And another suggestion is that if a customer can’t afford to repay the debt, the credit card company should look to cut interest or charges.
The FCA is still consulting on these proposals until 3 July 2017, so we’ll have to wait and see what comes of this.