Credit card debt has piled up, with more and more consumers being hit with interest charges as the cost of living crisis wipes out funds for lockdown-induced rainy days.
Almost £55 for every £100 held on credit cards now earns interest – a figure that has risen every month in the three months to January, according to the latest data from banking body UK Finance.
Experts said struggling families were going into debt to pay rising energy and food bills, with increased spending wiping out their lockdown savings. Helen Morrisey of brokers Hargreaves Lansdown said the pandemic savings boom was “collapsed”.
She added: “Moderate spending habits during the pandemic meant we were less likely to use plastic and default on paying off our debts in full.
“There will always be a financial hangover after Christmas, but it’s a sign that the rising cost of living is starting to bite.
Ms Morrisey warned the worst was yet to come as the latest UK finance data did not cover the last few weeks when inflation hit 7% – the highest level since 1992 – or energy bills rose 54% on April 1.
Overall credit card use rose 3.8% in the 12 months to January as families increasingly borrowed and reversed the downward trend seen during the pandemic, as shown in the graph below.