Credit cards have become an integral part of modern-day finances, offering convenience and flexibility for consumers. However, recent research from Compare the Market reveals concerning trends in credit card usage, with one in five borrowers making only minimum repayments on their credit card debt.
The Impact of Minimum Repayments
The research highlights a concerning trend, with 20% of borrowers admitting to only making the minimum repayment on their most recent credit card bill. This practice can have significant long-term consequences, as it often leads to accruing higher interest charges and prolongs the time it takes to pay off the debt. With less than half of borrowers (48%) consistently paying off their credit card balance in full each month, outstanding balances on credit cards are on the rise, exacerbating the financial strain faced by consumers amidst the cost-of-living crisis.
Late Payments and Growing Debt
In addition to making minimum repayments, a significant number of borrowers (26%) admit to paying their credit card bills late. This not only incurs late payment fees but can also negatively impact credit scores, making it more challenging to access credit in the future. As a result of these financial challenges, the average credit card debt now stands at £1,160, with credit card borrowing growing at a rate of 12.5% year-on-year.
Common Uses of Credit Cards
The research sheds light on the diverse range of uses for credit cards, with online shopping (52%) and holidays (48%) ranking among the top reasons for credit card usage. However, despite the prevalence of credit card spending, only 23% of people typically use their credit cards for purchases that earn rewards such as cashback or air miles. This suggests that many borrowers may be missing out on potential savings and benefits by not leveraging rewards programs effectively.
Key Considerations When Selecting a Credit Card
When selecting a new credit card, borrowers prioritize features such as the length of the 0% interest period and the ability to transfer balances from old cards. However, despite the importance of these factors, only 37% of borrowers utilize price comparison websites to find the most suitable credit card for their needs. This lack of comparison shopping may result in missed opportunities to secure better terms and benefits.
Navigating Credit Card Usage Responsibly
Andy Hancock, Chief Growth Officer at Compare the Market, emphasizes the importance of responsible credit card usage. While credit cards offer valuable consumer protection features, including Section 75 of the Consumer Credit Act, borrowers must exercise caution to avoid borrowing beyond their means. Paying off credit card balances in full each month is recommended to avoid accruing interest charges and mitigate the risk of long-term debt accumulation.
Conclusion
The findings from Compare the Market’s research underscore the need for greater awareness and responsibility in credit card usage. By understanding the pitfalls of making only minimum repayments, prioritizing timely payments, and leveraging rewards programs effectively, borrowers can navigate the complexities of credit card debt more effectively. Moreover, by conducting thorough research and comparison shopping, consumers can identify credit card options that align with their financial goals and needs, ensuring a more sustainable approach to managing credit.
