Surge in credit card spending on essentials
Barclaycard analysis revealed spending on credit cards was also up 1.6% from June, as shoppers splashed out on clothing and beauty products and services ahead of staycations planned over the summer break.
Spending on overseas travel and eating and drinking out started to drop, however, with Barclaycard suggesting this was driven by the need to offset higher outgoings as disposable income falls and wage growth continues to be outpaced by inflation.
Credit card spending on essential items rose 7% year-on-year, largely due to higher fuel and supermarket shopping prices, Barclaycard – which sees nearly half of the nation’s credit and debit card transactions – indicated. It said rising petrol prices led to a 29.9% jump in fuel spending.
Furthermore, nine out of 10 Brits told Barclaycard they had noticed the cost of everyday items including butter and milk was up on just four weeks earlier. Perhaps reflecting that, shoppers cut back on the weekly shop with the average value of a supermarket transaction dropping from £23.67 in January 2021 to £19.33 in July 2022.
June data from the Bank of England corroborates the rise in credit card spending, showing people borrowed an additional £1.8bn that month, of which £1bn was new lending on credit cards.
Office for National Statistics analysis showed it is middle earners who are sticking more on their credit cards with 23% of those earning between £15,000 and £30,000 borrowing more.
Those on very low incomes aren’t even managing this. The ONS records revealed that one in 20 of those earning under £15,000 is behind on energy bills and a similar number are behind on their mortgage or rent.
James Gibson, insolvency practitioner at the Debt Support Centre, said: “Thousands of Brits are struggling to make ends meet and are turning to their credit cards for support, with over 92% of Debt Support Centre customers in 2021 in debt due to credit cards.
“When dealing with our client’s credit card debts we have found that preparation plays a critical role in helping them afford the essentials while still having enough money left to tackle their credit card debt.”
Even savers are hurting
Meanwhile Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said its recent research suggested the proportion of the middle earners with enough savings to be resilient will dip below 50% over the next 12 months.
“Those at the bottom end of middle earners are hit the hardest of all. They’ll see the biggest fall of all in those with adequate savings – from 52% to 42%,” she said.
“On the other hand, it could be worse. Lower earners will start with lower levels of saving and end with less: just 30% of the lowest fifth of earners have enough savings now, and just one in four will have enough in a year’s time.”
Get on top of your credit card spending
James Gibson from the Debt Support Centre shares his tips to tackle credit card debt:
A good first step could be a budget review. An easy way to identify money you can allocate toward credit card debt is to categorise your expenses into essentials and luxury expenses. Those expenses you consider “luxury” are usually the first payments you could possibly look at reducing. From here you can then look at your “essential” expenses such as food shopping and energy bills to see if there are any further cost-cutting changes that you can make here.
It is also smart to know when payments are due and how much you must put aside to ensure your credit card is paid on time. Once you understand your budget and try to make cutbacks you can save money and put it towards paying back your credit cards.
Try to repay more than the minimum
People want to be able to balance the need to save money and stay out of debt with having enough income to enjoy life, so they often only make the minimum repayment each month. However, this strategy means you could take decades to clear your debt, as most of your repayment will build interest each month.
Try to break down the total debt into monthly payments and set up a direct debit to make it easier to manage your finances. If this isn’t possible due to the increased cost of living, try to switch to another credit card in order to have a window of time with no interest charged.
With the recent increase in global prices, it’s worth going onto a comparison website to see if you can get a better deal to reduce your credit card debt. Plenty of banks offer free cash, rewards, and other perks to new customers who switch accounts. This can cover some repayments on your former credit card.
Do your best to research properly and ensure it’s the right move for you to switch before taking drastic action. You don’t want to be paying steeper interest and charges once you’ve switched over to another bank or provider – check if it has a lower interest rate or better annual deal. The best option is usually to take out a 0% balance transfer credit card, reducing the interest you pay for up to two years.
If you have multiple credit card debts, there are multiple debt solutions that may be available to you.
One option is a debt consolidation loan, which pays off all your debts leaving you with only one payment. Some consolidation loans can be repaid over extended periods, meaning you can pay lower monthly instalments over a longer period to increase your disposable income. However, it is important to note that a consolidation loan is only a good option for you if the interest and charges are less than what you currently pay on your existing debts.
Pay off the most expensive card first
Avoid taking on more credit if you can. Attempting to take on more credit could make your financial situation much more stressful. You should try to get back on top of your current debt before considering adding to your existing debt level. If you are struggling, we recommend you speak to a professional financial adviser for advice that is tailored to you.