UK consumers are leaning heavily on credit cards to manage everyday expenses, pushing total outstanding credit card debt to a new record high, according to the latest data from the Bank of England.
The figures show a sharp increase in borrowing over the summer months, driven by the ongoing cost of living pressures and higher housing costs following a wave of mortgage renewals at elevated interest rates.
The shift from 0% to interest-bearing debt
Perhaps the most concerning metric in the data is the shift in the type of debt being held. While 0% balance transfer cards remain popular, an increasing percentage of the total debt burden is now sitting on standard, interest-bearing credit cards with APRs averaging over 23%.
This indicates that many consumers have exhausted their 0% promotional periods and are either unable to qualify for a new balance transfer deal due to tighter lending criteria, or are simply unaware of how much interest they are accumulating.
Lenders respond with caution
In response to the rising debt levels, major UK banks and credit card providers are adjusting their risk models. We are seeing two distinct trends:
- Reduced credit limits for new applicants: Lenders are limiting their exposure by offering lower starting limits.
- Aggressive monitoring of existing customers: Providers are closely watching for signs of financial stress, such as consumers making only the minimum payment for several consecutive months.
Protecting your profile
If you are carrying credit card debt, your priority should be shifting it to a 0% balance transfer card to stop interest accruing. However, you must check your credit score and use an eligibility checker before applying.
If you cannot qualify for a 0% deal, focus on paying more than the minimum payment on your highest-interest card. Even an extra £20 a month can strip months off your repayment term and save you hundreds in interest.