One in six people find credit card repayments a large burden

New polling from StepChange Debt Charity reveals that almost one in six (15%)  of adults, equivalent to more than 8 million people, find keeping up with their credit card repayments a very or fairly large burden each month, highlighting the growing challenge of credit card debt across the UK.

The research, conducted by YouGov on behalf of StepChange, also found that one in ten (9%) UK adults have used a credit card to pay for essential household bills in the past three months, equivalent to around 5 million people. Credit cards were the most commonly used form of credit for covering these costs.

The findings come as StepChange publishes a new report examining the regulatory framework for credit cards in the UK, and calls for fresh reforms to protect people struggling with living costs from becoming trapped in expensive credit card debt.

Previous StepChange research (see note 3 to eds) found that around 2.5 million people – 5% of all UK adults – are trapped in persistent credit card debt, meaning they have paid more in interest in fees and charges over the past 18 months than they have repaid towards the balance itself. The Financial Conduct Authority’s (FCA) own data also shows that persistent debt has increased since 2022.

Credit card debt is also a growing issue among people seeking debt advice. More than seven in ten (73%) StepChange clients currently have credit card debt, a proportion that has increased this year. Meanwhile, Bank of England data shows credit card defaults reached their highest level since 2009 in the three months to June.

Although the Financial Conduct Authority introduced rules on persistent debt in 2018, StepChange believes further action is needed to protect consumers, particularly those in vulnerable circumstances.

The charity says there is a need to shift the focus from dealing with persistent credit card debt to prevent it from happening in the first place. Measures should focus on:

• Strengthening affordability checks: The FCA should clarify its rules and take supervisory action where needed so lenders ensure customers, especially those who are financially vulnerable, can afford to repay credit card balances before they borrow.
• Fixing minimum repayments to reduce long-term debt: The FCA should increase minimum repayments to at least the level needed to prevent persistent debt and ensure borrowing is affordable. While it may seem counter-intuitive, increasing minimum repayments ultimately leaves customers with more of their money needed to meet living costs—and those who cannot meet this minimum should be provided help and forbearance, not left stuck in expensive long-term debt.
• Improving support for people in persistent debt: The FCA should update its rules so lenders step in sooner than 36 months to help customers stuck in long-term debt, especially those with high-interest cards and provide an early and safe way out. The aim should be to prevent people from becoming trapped in harmfully expensive debt, not deal with the problem after it has emerged.

Peter Tutton, Director of Policy, Research and Public Affairs at StepChange Debt Charity, said “Millions of people are finding it difficult to keep up with their credit card repayments, while many are increasingly relying on credit to cover essential household costs. This creates a real risk that more people will become trapped in long-term debt.

“People experiencing financial hardship are particularly vulnerable to becoming drawn into harmful long-term credit card debt that reduces their disposable income and compounds cost of living pressures, yet the current rules are not doing enough to protect them.

“Credit cards are often held for many years and people’s financial circumstances can change significantly over that time. Someone who could comfortably afford a credit card when they first took it out may later face financial pressures that make repayments much harder to manage.

“Cost of living pressures have intensified since the FCA last reviewed its persistent debt rules, making it more important than ever that the regulatory framework keeps pace with consumers’ experiences.

“It’s important that the FCA’s rules not only mitigate the consequences of harmful lending, but prevent it in the first place, placing clearer expectations on firms to reduce the number of people becoming trapped in persistent credit card debt.”

James Daley, MD of independent consumer group Fairer Finance said “The StepChange report into the credit card market clearly demonstrates that the FCA’s persistent debt measures have not worked. Since the last credit card market study over a decade ago, millions of people have continued to find themselves trapped by expensive credit card debt – with some banks still making considerable profits from their most financially vulnerable customers. Meanwhile, average interest rates have risen considerably over the past decade. According to Moneyfacts, the average credit card purchase interest rate has risen from 21.9% to almost 36% over the past 10 years – an increase of almost 70%. Credit card interest rates rose steadily between 2008 and 2021, even whilst Bank of England base rates were close to zero. And as base rate has risen, credit card rates have shot up even faster and further.

“We support StepChange’s call for a review of the persistent debt rules. But the FCA also needs to look at how the 0% credit card market is working. These cards continue to offer excellent value to the UK’s most financially resilient households, paid for by those who are struggling. This cross-subsidy does not represent fair value and is not in keeping with the requirements of the FCA’s Consumer Duty. Zero percent introductory offers rely on a significant minority of customers not paying off their balances by the end of the offer period, and then moving onto rates that are often over 30%. In many cases, banks could have intervened and offered more suitable borrowing products at the outset.

“The 2014 market study left too many issues untouched in this market – and even the remedies that were implemented have not been effective. The FCA must now take a fresh look at this market and create the conditions for much better outcomes for customers.”