Credit card balances fall as repayments outstrip new borrowing

Latest data published by UK Finance has revealed that spending across debit and credit cards fell in October 2020 compared to the previous month, as additional social distancing measures were introduced across the UK.

There were 1.7 billion debit and credit card transactions in the UK in October, a 0.4 per cent decline from September and 3.6 per cent lower than in October 2019. These transactions amounted to a total spend of £64.2 billion, which was 2.5 per cent less than the previous month, but 4.9 per cent higher than October 2019.

The proportion of spending made using contactless cards also fell, as Covid-19 restrictions provided fewer opportunities for people to spend money in pubs, restaurants and on public transport. Over four in ten (41 per cent) card transactions were contactless in October, compared to 44 per cent the same month the previous year. There was a total of 687 million contactless card transactions in October, 1.9 per cent lower than in September and 9.8 per cent lower than October 2019. However, the total value of contactless transactions, at £8.1 billion, was 15.8 per cent higher than October 2019 as people had the opportunity to take advantage of the increased £45 payment limit.

The number of transactions made by UK debit cardholders fell 4.6 per cent compared to the previous month to 1.6 billion, which was also 3.5 per cent lower than October 2019. The total spend of £53.2 billion was 9.1 per cent lower than in September and 0.2 per cent less than the same month in 2019.

UK Finance data also shows that outstanding balances on credit card accounts fell by 14.7 per cent in the year to October 2020. This is the eighth successive month in which repayments have outstripped borrowing, and the largest drop over a twelve-month period since the pandemic began. This could be attributed to people choosing to pay off debt or reduced usage of credit, and the reduction of large expenditure on items such as holidays due to the continued travel restrictions.

Eric Leenders, Managing Director of Personal Finance, UK Finance, said “October saw card spending decline in the UK as additional social distancing measures and Covid-19 restrictions were put in place across the country, reducing opportunities to spend on the high street and in pubs, bars and restaurants. Spending on contactless cards also fell as regional lockdowns came into force, restricting use of contactless across retail outlets.  However, contactless remained popular for essential transactions, with consumers being able to make use of the increased £45 payment limit.”

“Outstanding balances on credit card accounts fell for the eighth month in a row, reaching the largest drop over a twelve-month period since the pandemic began – indicating that more people were paying off debt, or fewer making use of credit.”

Commenting on the card spending data, James Padmore, Head of Money at comparethemarket.com, said “With the UK in and out of national lockdown over the last year, people are looking to pay down any outstanding debt where they can. With credit card balances in October 2020 reducing for the eighth consecutive month, it will be interesting to see whether people took on more debt in the run up to Christmas because of the continued strain on household budgets caused by the pandemic.”

“Reducing debt by paying off a set amount, or the balance in full, can significantly reduce the amount of interest that can accrue on bills. Using a credit card with a 0% APR offer can also be a useful way to spread out these costs as long as individuals engage responsibly with debt and keep an eye on their outgoings. However, 0% offers are typically only available for a fixed period before a higher rate of interest applies. Shopping around online is a good way to see the introductory offers that are currently available on the market.”