Credit card debt to hit almost £70bn in the next six months, forecasters warn

Huge jump in number of people ‘terrified’ about their finances, as calls for more responsible lending grow

Almost half of under-34s say they are ‘particularly fearful’ about their finances (Getty/iStockphoto)

The number of people who admit to being ‘terrified’ about their financial circumstances has jumped by 50 per cent in just 12 months as the cost of living crisis deepens.

Almost one in three consumers now reports this level of fear about their ability to make ends meet, according to new research.

Inevitably, lower income households and younger people are particularly fearful, with almost half of under-34s now describing the level of their financial fears in such stark terms – up from 29 per cent this time last year.

A third say they will need to borrow money to survive the next few months, despite the fact that the price of products and services is unlikely to peak for several more months, according to data compiled by lender CreditSpring.

It predicts credit card debt will hit almost £69bn over the coming six months – an 18 per cent jump in total debt – as households struggle to keep up, despite concerted efforts to cut back.

Separate data released by the Office for National Statistics (ONS) in recent days shows rising everyday costs are now affecting 91 per cent of the UK population, up from 62 per cent six months ago.

In response, non-essential spending is being slashed, millions have stopped taking non-essential car journeys, and a third are spending less on essentials. Two in five are now buying less food and more than half have curbed their gas and energy use at home.

But despite often severe attempts to cut costs, gaps are now appearing at a national level.

Domestic energy debt has doubled to £1bn in a year, for example, USwitch warned last week, with a quarter of consumers now owing their supplier money. Six million households owe an average of £188 to their energy providers, leaving them without a buffer to battle rising prices that are expected to rise again, by another £600, in October.

“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,” says Theodora Hadjimichael, chief executive at financial network, Responsible Finance.

“All three together are causing a seismic shift in the consumer credit market.”

According to the most recent Bank of England figures, UK individuals are currently borrowing £1.5bn every month on credit cards, with the total predicted to rise by another £9bn by the autumn – a calculation made even before Russia’s invasion of the Ukraine started to have knock-on economic effects here in the UK.

With one in six adults expected to apply for greater borrowing – particularly through credit cards – they’re doing so while already carrying an average of 13 per cent more existing debt than they were this time last year.

“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,” Neil Kadagathur, co-founder and CEO of Creditspring, warns.

“It is clear from the customer insights in the [Bank of England’s latest] financial stability tracker that it has never been more urgent to scale up responsible lending,” says Hadjimichael.

“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.”

As the demand for support increases, financial service providers need to ensure that borrowers have access to affordable credit options which do not put their financial stability at risk,” she notes.

And although 0 per cent 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,” says Kadagathur, pointing out that that means they’re the least likely to benefit from the interest-free period.

“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,” he adds.

“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.”