British consumers are increasingly struggling to cope under an ever-growing mountain of credit card debt, according to new research by the New Economics Foundation (NEF) think-tank.

Using data from the Financial Conduct Authority, R3 and its own modelling, NEF finds that credit card debt is increasingly becoming as unmanageable as payday lending debt was for many before that industry was regulated.

The analysis comes as the MP for Walthamstow Stella Creasy, who led the parliamentary efforts to secure a cap on the costs of payday lending, hosts a debate in Parliament where she will call for the 100% cap on payday lenders to be extended to cover credit cards.

A survey by the insolvency and restructuring trade body R3 found that:

  • Four in ten British adults (41%) are worried about their levels of debt
  • Of those worried about their levels of debt, half (50%) are worried about credit card debt
  • 40% of adults say they often or sometimes struggle to make it to payday
  • Of those, nearly a third (31%) do so because of having to make credit card repayments

And from the FCA’s recent survey of financial consumers, NEF found that:

  • Only four in ten (41%) of those with outstanding credit card debt at the end of the month are deemed financially resilient by the FCA. The rest are either ‘surviving’ (36%) or ‘in difficulty’ (23%)
  • More than half (52%) of those with credit cards are ‘potentially vulnerable’, meaning they have few resources to fall back on if faced with a health problem or job loss
  • 28% of those with credit cards don’t know what APR (annual percentage rate) they’re being charged
  • The main reason people gave for taking out a loan on a credit card was because of a balance transfer offer, hinting at the long-term nature of much of this type of credit

NEF and the Centre for Responsible Credit’s  own modelling shows that someone who borrowed £1,000 from an Aqua credit card with a monthly interest rate of 3.992% and making minimum monthly payments will have paid:

  • £480.57 interest by 12 months
  • £687.64 interest by 18 months
  • £882.59 interest by 24 months
  • £1006.17 interest by 28 months
  • £1238.93 interest by 36 months

Given the large and increasing number of people in persistent credit card debt, this modelling suggests more and more British consumers are paying more for their credit card debt than the 100% cap on so-called ‘high-cost credit’ like payday loans.

Stella Creasy, MP for Walthamstow, said “Millions of people are ‘zombie debtors’ – paying the interest but not the capital off on their credit cards – and two million more are in arrears. With the FCA data itself showing five million of us will take 10 years or more to clear our credit cards, there is a simple principle at stake – why do we cap payday loans to disrupt these spirals of debt but leave millions facing exactly the same problems of being stuck in a debt trap with credit cards?”

“If the FCA is timid on this, then the Government should act and bring in legislation to require them to cap credit cards too and protect millions of consumers. We took too long to act as a country on the damage the likes of Wonga were doing. We must not make the same mistake.”

Andrew Pendleton, policy director at the New Economics Foundation, said “‘Far too many are living under the long, dark shadow of loans they took out and can simply never pay off. This is because the charges they end up paying often amount to more than twice the original amount borrowed.”

“It’s immoral and unfair for lenders to be able to charge so much for credit. It’s bad for people but also bad for the economy as money ends up in the coffers of greedy finance companies rather than being spent by families on essentials. Just as pernicious payday lenders were stopped from charging so much, so other lenders should have their charges capped.”

The New Economics Foundation and the Centre for Responsible Credit have joined forces with Jubilee Debt Campaign, Toynbee Hall and Debt Resistance UK to address the build-up of unpayable household debt in the UK economy. Combining research, advocacy and grassroots organising, the coalition is calling for a 100% cap to be introduced on the total cost of any credit card debt.

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