Credit consumption increases with consumers taking on more debt for longer

High inflation, interest rates, and a confirmed recession are fuelling a household debt rise, with signs of consumers increasing their reliance on credit products, deferring payments, and spreading out debts for longer to face down the rising cost of living.

Equifax data reveals a sustained increase in credit card debt, with levels rising by 9.6% over the past 12 months. While the total number of credit cards in use has also grown by 3.2% during the same period, the more concerning trend lies in utilisation. The number of cards with at least 90% utilisation has risen by 10%, with a similar increase observed in cards exceeding their credit limits.

Credit Card debt is by far the most common cause of debt among consumers, hitting 43% of consumers. This is followed by overdrafts (22%), mortgages (20%), student debt (19%), and Buy Now Pay Later (BNPL) loans (18%).

BNPL in particular has become increasingly popular through the cost-of-living crisis, as consumers look to spread out the cost of their purchases. Equifax research shows almost half of UK adults (48%) have now used BNPL, with an additional 7.4 million people using the payment method for the first time last year.

When it comes to mortgages, homeowners feeling the strain of higher interest rates are opting for extended loan terms, in order to spread the cost of borrowing Equifax data4 reveals that over 10% of mortgage originations in November were at loan terms of more than 35 years, a significant increase on the 3.5% observed two years prior as households opt to counter higher mortgage repayment rates by staying in debt for longer.

Beth Whelan, Chief Strategy and Transformation Officer at TDX Group, an Equifax group company based in the UK said “Given the signs of finances being spread too thin, more and more people are relying on credit to keep up with the current cost of living and are shouldering their debts for longer. Access to credit has many positive benefits, but both lenders and borrowers should approach debt responsibly, and appropriately assess affordability and ensure the right controls are in place to protect vulnerable consumers.

“The government’s decision last week to abolish the charge for Debt Relief Orders will be a welcome helping hand for families facing up to debts, but it remains the case that consumers should always seek to address problems as early as possible. Charities and organisations like StepChange and Citizens Advice Bureau can help build a roadmap out of debt so people can regain control of their finances, while new digital engagement solutions are offering consumers added flexibility with round the clock debt assistance.

“Meanwhile, lenders and creditors must continue to prioritise building a robust picture of customer affordability, balancing financial inclusion with the need to protect financially vulnerable customers before debt risks become unsustainable”