Credit card balances start to creep up

Latest figures from UK Finance have indicated that credit card balances have started to creep up as the cost of living started to bite.

The figures show that after several months of falls, outstanding balances on credit cards have started to creep up again with balances up 3.8% year on year.

Spending had previously been more muted the previous year due to the pandemic.

The figures show that there were 1.2 billion contactless transactions in January 2022. This is a 78.7% increase from January 2021 and a 31% increase on January 2020.

The total value of contactless transactions in January 2022 was £16.3 billion. A huge increase on the previous two years and fuelled by the contactless card limit being increased to £100.

Commenting on the figures, Helen Morrissey, Senior Pensions and Retirement Analyst at Hargreaves Lansdown said “Today’s data shows further signs the pandemic savings boom is unravelling with outstanding credit card balances on the rise after months of decline. Subdued spending habits during the pandemic meant we could put more away for a rainy day and we were less likely to put purchases on the plastic and not pay them off in full.”

“There was always going to be something of a financial hangover post-Christmas, but the concern is that these outstanding balances are also a sign that the rising cost of living is starting to bite. We are increasingly having to burn our way through our lockdown savings to meet everyday expenses and using our credit cards more to fill any gaps.”

“The pandemic has also had a huge effect on how we use our cards with contactless transactions continuing to rise steeply. Many shops were reluctant to handle cash during lockdown and it looks to have fallen further out of favour with the recent increase in contactless limits set to £100.”

Jacob Rider, Co-Head of Projective Group’s payments practice said “Card transactions by UK cardholders, both in the UK and overseas, remained relatively stable in month-to-month terms; in January, there were 1.7 billion debit card transactions, down from 2 billion in December 2021. However, it is concerning to see the outstanding balances on credit card accounts growing by 3.8% over the twelve months to January.”

“As these figures are from January, they do not convey the market as it stands today. Recent statistics from the Bank of England show that credit card borrowing jumped by £1.5bn in February to £59.5bn – the highest since records began in 1993. Households are turning to expensive forms of lending to cope with rising costs of food, clothing, and fuel. UK Finance’s next data set might paint an even bleaker picture.”

“With inflation levels at a 30-year high, these statistics may well continue to worsen as people around the UK fall into further debt to cover these rising costs, which could lead to serious problems further down the line when repayments are due.”