Credit card debt increasing

Britons spent ?540,000 a minute on their plastic last year as the popularity of credit and debit cards continued to soar, a report claimed today.

Consumer spending on cards totalled ?285bn in 2001, nearly 20% higher than the previous year's total of ?240bn, according to market analyst Mintel.

The research found that while credit card spending continued to grow, the increase in debit card use was "spectacular", rising to ?199bn from ?162bn the previous year, more than doubling credit card expenditure.

As a proportion of total consumer spending the use of credit and debit card spending has risen from 15% in 1992 to 44% last year, and 56% of all adults now hold a debit card, while 49% have a credit card.

But the group found that credit card debt was also increasing and by the end of last year 15% of cardholders owed more than ?1,500, while 8% had debts of ?2,500 and 4% had outstanding balances of more than ?5,000.

Mintel said if people owing more than ?5,000 paid the minimum payment of 3% of their balance, ?150 a month and maintained this, it would be nearly four years before they cleared the debt assuming an annual percentage rate of 14.9%.

If they reduced the minimum payment each month in line with the debt it would be almost 10 years before the balance fell to under ?1,000, by which time they would have paid interest of around ?4,700.

Report author Toby Clark said: "Not only does this indicate the dangers of letting credit card spending spiral out of control, but also the extremely profitable nature of those customers who just rotate a sizeable balance, either paying the minimum or repaying a sizeable amount but letting debt build up again.

"Although at first glance it may seem that the 37% of respondents who repaid their balance every month would make it difficult for card issuers to profit, it would seem that those who do maintain a balance are more than capable of subsidising those who do not."

The group found that younger people were more likely to get into debt, with just 22% clearing their balance in full each month, and the same proportion claimed they felt there was a danger that their credit card usage could get out of control.

Mintel identified three types of card user, the cautious, the carefree and the occasional. It said cautious users tended to know when they must make their monthly payments, they clear their balances every month and know how much interest they pay on outstanding balances.

By contrast those with a more carefree attitude say they find it difficult to pay the interest on their balances or feel they have to exert self-control to avoid over-using their cards. Occasional card users hold a card but rarely use it, reserving it for special occasions or emergencies.