Rise in debt fuelled by credit card spending

The number of British consumers who have taken on more debt over the last five years has risen sharply to 37%, up from 27% just a year ago, according to a UK-wide survey by Arrow Global. The findings come from a survey of 2,008 consumers with debt, including 804 debt defaulters (borrowers have been late with payments). The findings of the research are backed up by the latest Bank of England data, which reveals that credit card debt reached an all-time high of £66.2bn in October. The Arrow Global research shows that the most common form of personal debt is credit cards not settled in full every month.

• Almost half of borrowers (48%) now have a credit card which is not cleared in full each month, compared to 39% 12 months ago.
• Of the consumers surveyed 42% have a mortgage, compared to 46% a year ago.
• Almost one third of respondents (31%) have an overdraft, up from 23%. (see Table 1 below)

The fact that credit cards have overtaken mortgages as the most frequent form of debt and overdraft borrowing has increased sharply suggests that the rise in short-term consumer borrowing and increasing house prices have combined to change the nation’s borrowing habits. 

In findings that highlight the potential risks of Britain’s growing debt mountain, the research found that credit cards were the source of debt that borrowers struggle most to repay. Over half of debt defaulters (55%) struggle with credit card debt that is not settled in full every month – more than twice as many as the next most common source of problem debts, overdrafts (23%) and unsecured personal loans (19%). (Table 2)

There has also been a substantial change in the reasons given by debt defaulters for struggling with repayments. Poor budgeting has risen from third place to the number one spot for the cause for debt default, with over a third of defaulters citing this as the cause (35%), up from 19% last year. This significant increase has pushed poor budgeting ahead of reasons such as earnings being cut back (loss of overtime or self-employed earnings) (27%) and losing a job (25%), indicating that employment related reasons could be less significant than they were a year ago, potentially reflecting Britain’s record level of employment. (Table 3)

One in ten debt defaulters (10%) say they have never been able to catch up with repayments after falling behind, highlighting an issue of persistent debt problems for a sizeable minority that is practically unchanged from last year, when it was 9%. This highlights the need for the industry to do more in supporting debt defaulters with debt rehabilitation, which is the main theme for an industry round table that has been arranged by Arrow Global for Friday 9^th of December 2016. However, most problem debts are handled effectively by defaulters who are able to get on top after falling behind. Almost half (49%) of defaulters were sometimes able to catch up with repayments, while 42% said they were always able to catch up.

Tom Drury, Chief Executive Officer of Arrow Global, said “Consumer credit is vital for the smooth-functioning of the economy, but it is clear that British consumers are taking on a heavy debt burden at the moment that is not going to be sustainable for some. The low interest rate environment means that debt is cheap, but that doesn’t help consumers who have struggled with their monthly budgeting or suffered from a shock event like losing their job. When borrowers do fall behind on repayments, it is vital that they get all the support they need to rehabilitate their debt.

“In the context of a fairly gloomy economic outlook from the Office of Budget Responsibility and with the festive peak in borrowing approaching, we believe that more needs to be done to help consumers and we have arranged an industry round table in December to discuss these issues to try and find potential solutions that the whole industry can get behind to help improve outcomes for customers.”

Table 1: 2016 Top Five forms of debt, compared to 2015 

	2016	2015
Credit card balance not settled in full every month	48%	39%
Mortgage	42%	46%
Overdraft balance	31%	23%
Student loan	19%	14%
Borrowing from family or friends	16%	12%

Base: full survey sample

Table 2: 2016 Top Five forms of debt defaulters struggle to repay, compared to 2015 (what type of loan(s) were you unable to meet repayments on?)

	2016	2015
Credit card balance not settled in full every month	55%	51%
Overdraft	23%	18%
Unsecured personal loan	19%	22%
Mail order credit	14%	17%
Payday loan	13%	10%

Base: borrowers in debt default

 

Table 3: 2016 Top Five reasons for defaulting, compared to 2015

	2016	2015
Poor budgeting	35%	22%
My earnings were cut back (loss of overtime or self-employed earnings)	27%	22%
I lost my job	25%	23%
I suffered a period of ill health	24%	25%
I borrowed too much	18%	20%

Base: borrowers in debt default

 

Table 4: Whether debt defaulters have been able to catch up with repayments after falling behind

	2016	2015
Sometimes able to catch up	49%	51%
Always able to catch up	42%	40%
Never able to catch up	10%	9%