UK consumers 'paying less off credit cards'


Britons are paying less off their credit card balances than at any time over the last two years, according to new research from FICO.


The consumer analytics company has published new data from its Benchmark Reporting Service which show that the payment-to-balance ratio among standard credit card accounts has declined. The findings indicate a deterioration in consumers' financial health.

Cardholders failing to repay debts
Consumers are struggling to find the money to pay off their credit card balances in full, new figures show. The latest data from FICO, representing 26m accounts, show that Britons are actually paying less off their credit cards than at any time over the past two years.

Cash advances on the rise
Meanwhile, consumers are increasingly relying on their credit cards for cash advances, with the number of people using their cards in this way rising to its highest level in two years.

This can be a particularly expensive way of borrowing money. Cash advances are usually charged a higher rate of interest than regular card purchases and often charge interest from day one. This means they should only be used as a last resort and the debt should be paid off as quickly as possible, say experts.

"The combination of flat spending on classic cards with lower payment percentages and higher cash usage indicates increasing strain on consumers' wallets," commented Mike Gordon, FICO vice president and managing director for Europe, the Middle East and Africa. "While one month is not enough to call a trend, we are monitoring these and other patterns closely to help our clients manage their card portfolios and understand changes in the UK consumers' financial health."

Balance transfer cards may ease the pinch for some
Consumers who are only managing to make the minimum repayments on their credit cards, or who have such large outstanding balances that they will require months to clear them, may want to compare credit cards and apply for a balance transfer card. These cards allow people to transfer their outstanding balance from their original credit card and pay no interest for several months.

For instance, the Barclaycard Platinum with Balance Transfer card is currently offering 0% on balance transfers for 22 months, with a fee of 2.9% of the amount transferred and a representative APR of 17.5% (variable). An alternative is the Halifax Balance Transfer card, which has a 22-month 0% balance transfer period (3.5% fee) for balances of £3000 or less and 17.9% representative APR (variable). Both of these cards require a good credit rating and may therefore not be suitable for people who have missed repayments on their existing cards.

See related: Bankers expect credit problems to worsen; Study: Worst consequences of recession 'still to come'

Published: 2 December 2011