You are here: Home - Credit Cards & Loans - News -

Half of households rely on credit to pay for essentials

0
Written by:
21/11/2022
Credit cards are the plastic of choice for one in two UK adults when it comes to paying for essentials.

The rising cost of living means more people are using credit cards rather than debit cards to pay for essentials such as food shopping in recent weeks.

According to research from comparison site Comparethemarket, the average amount held on credit cards has also risen in the past year.

This figure has risen by £126, taking the outstanding amount from £1,408 to £1,534.

Given the rise in debt, it found one in five have missed a credit card payment in the past six months, with two in five saying the rising cost of living had made repayments unaffordable.

This resulted in half being charged a late payment fee, while 35% saw their credit score impacted and 227% were charged interest on their repayment.

Meanwhile, over a quarter of people are borrowing money from family and friends as prices spiral.

It said there are “concerning signs” that people are needing to borrow money to pay for everyday spending, with credit cards giving users breathing space as repayments can be made later.

By contrast, debit card spending sees money leave the account straight away.

Food shopping is the top credit card spend

The research revealed supermarket shopping is the most popular credit card spending category, with 38% using credit to pay for food.

More than a fifth are also turning to credit cards to pay for clothing (23%) and household bills (22%).

It said that for those who are struggling to keep up with payments, they can ask their lender for a payment holiday.

Comparethemarket said two in five credit card users have either taken or are considering a payment holiday due to rising living costs.

Interest-free credit cards

As such, it explained that an alternative ways to save money could be to switch to an interest-free credit card, with 60% of credit card holders using a standard APR card.

This is where interest is charged on repayments, whereas interest-free credit cards do not charge interest. However, interest-free credit cards are typically offered for a set number of months on a promotional basis, meaning people will be charged interest once the promotional period ends.

According to business information and ratings agency Defaqto, there are 65 credit cards offering interest-free purchase deals, up from 46 in 2020. And there are six which offer up to 24-months interest-free.

Meanwhile, Comparethemarket also found 50% are using or considering alternative ways to borrow, with 43% relying on Buy Now, Pay Later schemes, while 35% have dipped into an overdraft and 26% have taken out a personal loan.

Alex Hasty, director at Comparethemarket said: “It’s concerning that people are increasingly reliant on their credit cards or borrowed money, given rising interest rates, especially for spending on things such as the supermarket shop.

“While having access to credit can help to provide a useful buffer for times where you might need it, and be a great way to help manage finances and may also provide extra protection on purchases under Section 75 of the Consumer Credit Act; it’s important to remember you may have to pay additional interest on your borrowing if you do not pay off the full amount, or miss repayments.

“You might be able to reduce repayments, or prevent having to pay more interest, by switching from a standard APR card to a card with an interest-free period. You might also be able to save money by switching to a credit card with better rewards or by shifting debt from multiple credit cards to a single card. It’s worthwhile shopping around online and comparing cards to find one that best suits your needs and circumstances.”

Related: Cut through the jargon: YourMoney.com’s credit card glossary

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Autumn Statement: Everything you need to know at a glance

Yesterday Chancellor Jeremy Hunt made his first fiscal statement in the role, outlining a range of tax measure...

End of Help to Buy: 10 alternatives for first-time buyers

The deadline for Help to Buy Equity Loan applications passed on 31 October. If you’re a first-time buyer who...

Moving to an energy prepayment meter: Everything you need to know

As households struggle with the soaring cost of energy, tens of thousands of billpayers are expected to move o...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week