A fifth of borrowers only pay the minimum amount required on their account balance, contributing to a rise in credit card debt, data reveals.
The average outstanding balance for UK cardholders stands at £1,160, as the amount of credit card debt accumulated rose by 12.5% in a year.
Only half of the 2,000 borrowers surveyed by Compare the Market paid off their balance in full (48%), with the impact of the cost-of-living crisis hampering households’ promptness in making repayments.
Further, over a quarter (26%) of account holders said they paid off their credit card bills late, with two-thirds doing so in the past year, according to separate data from the Bank of England (BoE).
In terms of borrowers’ spending habits, the most popular reasons for using credit cards were online shopping and holidays, which 52% and 48% respectively used their cards for.
However, only 37% of cardholders would shop around to secure the best possible deal, therefore missing out on perks including cashback and rewards on future purchases.
Balance transfers en vogue with borrowers
Customers are typically prioritising 0% balance transfers, with 41% believing the free interest period is key when selecting a new card. A fifth also thinks the ability to shift the debt onto another card is important when shopping for a new credit card, and over a third (37%) used the balance transfer to dodge high interest rates.
Meanwhile, the information provided by some lenders has been criticised as contributing to ‘downselling’ – where borrowers pay higher rates due to missing out on details of a credit card. Totally Money’s study found some providers didn’t have features, including eligibility checkers or summary boxes, that assist customers in making the right choice of credit card.
Regarding the issue, its CEO, Alastair Douglas, felt that “for too long” banks were treating credit card applications “as if they were a lottery.”
Andy Hancock, chief growth officer at Compare the Market, advised customers to take their time when picking their next plastic.
Be mindful of affordability when considering a credit card
Hancock said: “Credit cards can be a valuable tool for making purchases. For example, they often come with built-in consumer protection features, including Section 75 of the Consumer Credit Act.
“That being said, when taking out a credit card, you have to be mindful of not borrowing more than you can afford. It’s worthwhile paying off your credit card balance in full every month to avoid paying interest.”
Hancock added: “If you’re looking to take out a new credit card, you should check in advance if you are eligible for the card. Tools such as Compare the Market’s eligibility checker can help determine what cards you have a greater chance of being accepted for without affecting your credit score.”
