Credit card debt up to pre-pandemic high
Credit card debt up to pre-pandemic high

Britons borrowed £1.5bn on credit cards in February, according to the Bank of England’s Money and Credit report.

In total, Britons borrowed a further £1.9billion in consumer credit last month as the cost of living crisis took hold.

This increase in debt was split between £1.5bn of additional credit card borrowing and £0.4bn of borrowing through other forms of consumer credit such as car finance and personal loans.

The credit card figure is above the pre-pandemic 12-month average to February 2020 of £1 billion and represents an annual growth rate of 9.4%.

Laura Suter, head of personal finance at AJ Bell, said: “The country is clearly already feeling the effects of the cost of living crisis, with credit card use soaring in February as rising prices push more people to go into debt. In February alone, the country put £1.5bn on credit cards and took on a further £400m in other borrowing, such as personal loans or store cards. The total amount we borrowed during the month was more than double the pre-pandemic average and shows how much the price spike is hurting people’s pockets.

“Additionally, the £1.5billion put on credit cards in February is equal to the previous five months combined, and is a far cry from the peak of pandemic economies where the nation has paid off nearly £5billion in debt credit card in a single month. However, the reality is that this debt figure will continue to rise in the coming months as more households see their expenses exceed their incomes and have to put more monthly costs on credit.

It’s worth pointing out that the Bank of England figures do not include buy now, pay later (BNPL) borrowing, which has boomed in recent years and accounts for much of the credit that Britons take. This means that the country’s debt figure will be much higher in reality, as people choose to defer payment for items they cannot afford today.

Figures from the Bank of England also show, perhaps unsurprisingly, that the amount we’ve all managed to save has also fallen dramatically, with £4bn being placed in savings accounts in February, from £7.2bn in January.

However, when we look at bank savings combined with NS&I savings, it is at a similar level to pre-pandemic. But we are a far cry from January and February of last year, when we saved over £18billion over the two months, compared to just over £5.5billion this year.

Suter added: ‘More households won’t have spare money to put away each month and will have to start dipping into their savings as ‘awful April’ rolls around and the squeeze on all our incomes increases.

StepChange’s latest client data report for February shows an increase in the proportion of people seeking advice who say cost of living pressure is a reason for their debt. Cost of living was the fourth most common reason last month, cited by about one in nine customers.

But the charity warns that consumer credit is only part of the debt picture. For example, of customers responsible for paying utility bills in February, 28% were behind on their electricity and 23% on their gas. Step Change says it expects to see this situation worsen after April, when the new energy price cap comes into effect.

Debts owed to the government, such as council tax, also feature prominently with four in 10 new customers (39%) late with payments when they sought debt advice in February. These debts are generally pursued more aggressively, potentially including by bailiffs, and less likely to be able to be rescheduled into a debt repayment plan than consumer credit arrears.

Peter Tutton, Head of Policy, Research and Public Affairs at StepChange, said: “While it is important to monitor what is happening in the consumer credit market, to fully understand the current landscape of household debt requires a broader perspective. More and more, what we are seeing is that people struggling with debt are having difficulty meeting not only their credit repayments, but also their priority bills.

“We are convinced that as the year progresses the Chancellor will likely have to find a way to provide greater and more targeted support to those who are simply unable to absorb increases in the cost of living in the budget of their household. In the meantime, we urge anyone struggling to make ends meet to seek help from a reputable debt counseling organization at an early stage, rather than turning to potentially more damaging coping strategies such as than high-cost credit.

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