Credit card debt set to increase by £9bn as people borrow to survive the cost of living crisis

3rd May 2022

The UK is set to borrow an additional £9bn on credit cards over the next six months to survive the cost of living crisis, according to a new report by subscription lender Creditspring.

According to the most recent Bank of England figures, UK individuals are currently borrowing £1.5bn every month on credit cards. This borrowing will increase the UK’s total credit card bill by 18% to £68.9bn as living costs and inflation soar and households struggle to keep up.

Given these figures were announced before Russia’s invasion of Ukraine pushed energy prices up, borrowing is likely to increase in the coming months, with Creditspring’s research indicating that credit cards remain the most popular form of borrowing. Monthly debt repayments have jumped 9% in a year and the total balance of unsecured loans among people applying for credit has increased by 13% year-on-year.

Surging living costs make budgeting more difficult, putting them at increasing risk of falling into debt if they struggle to meet repayments from borrowing. As a result, households are increasingly worried about their financial future: almost a third (29%) admit they are terrified about their finances, compared to 20% last year – a jump of almost 50%.

Whilst the rising cost of living is piling pressure on households across the UK, it is having a disproportionate impact on vulnerable households and younger people. One in four (39%) people living on lower incomes (under £10,000 per year) are terrified for their financial future and nearly half (46%) of 18-34s say the same, up from 29% last year.

With inflation already at 7% and rising, household finances will become even more stretched, forcing many to borrow to survive. One in six (16%) adults, or around 8.5m people, will need to borrow in the next six months, up from 13% last year –  the situation is much worse amongst younger people as one third (33%) of 18-34-year-olds say they will have no option but to borrow.

Neil Kadagathur, Co-Founder and CEO of Creditspring, said “Credit cards are going to provide a lifeline for borrowers over the next few months. However, with millions reliant on borrowing to survive, credit cards with high repayment terms and large risk of debt spirals are a high-risk option that could lead to increased debt for many households.

“Although 0% interest-free credit cards are available, if a borrower doesn’t pay off the balance in full then they’ll be hit with high costs and additional interest. Unfortunately, those who will be most reliant on these products over the next few months are also the individuals with the most financial uncertainty, meaning they’re less likely to pay off in full to enjoy 0% interest and risk falling into debt.”

“With millions across the UK having no option but to borrow if they’re going to survive what will be an incredibly tough few months, ensuring that all households have access to affordable credit is vital. Currently, there are up to 15m people in the UK struggling to access mainstream credit options – these are the individuals most at risk from unscrupulous lending practices and falling into debt. Lenders have to offer more support to borrowers and step up to offer the support that will be a lifeline over the next couple of months.”

Households are already feeling the brunt of the rising cost of living, with 27% feeling financially unstable due to the rising costs. In fact, many households’ finances are under more pressure now than they were during the pandemic. Compared to just 10% last year who felt financially unstable due to the pandemic, the rising cost of living is causing even more households to feel unstable.

The research also reflects the recent energy cap rise – almost two thirds (63%) of households name rising utility bills as their number one financial concern, followed by increased food prices and inflation.

Theodora Hadjimichael, Chief Executive, Responsible Finance, said “Any one of the cost of living crisis, recovering from the financial impact of the pandemic, or the explosion of unregulated Buy Now Pay Later products would have sent shockwaves through society. All three together are causing a seismic shift in the consumer credit market.”

“It is clear from the customer insights in the Financial Stability Tracker that it has never been more urgent to scale up responsible lending. More than seven million people are financially excluded and their financial resilience is in peril. Responsible lenders offer them a better, fairer alternative when they need to borrow, so will be absolutely critical over the coming months of uncertainty.”