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Average UK consumer burdened by £4,500 credit card debt

The following is a guest post from Jamie Samson. Jamie is a freelance writer and finance blogger who is currently enjoying life on the continent. When not comatose on the beach, Jamie writes editorial and advice pieces for some of the UK’s most authoritative websites.

Recent research conducted by one of the UK’s leading peer-to-peer lenders has revealed the true cost of credit card debt across the UK. On average, British consumers are saddled with £4,500 in credit card debt, and in some cases, this amount is taking as much as 17 years to repay. Perhaps more worrying is the denial some people are exhibiting and the unrealistic expectations they have about paying the debt off.

The rising cost of credit card charges

One area causing particular concern in the financial services industry is the rising level of complaints received about credit card and overdraft charges. In many cases, payday loans from firms such as Wonga represent a cheaper source of short-term credit than bank overdrafts and credit cards.

The true scale of the problem is highlighted by the latest figures from Citizens Advice Bureau, which has received 8,000 calls from consumers struggling with payday loans, compared with 14,000 and 32,000 calls about overdrafts and credit cards respectively.

However, while the Financial Conduct Authority (FCA), the current industry regulator, has been quick to impose tough new rules on payday lenders, credit cards and overdraft facilities have gone completely unchecked.

A spokesperson for the Citizens Advice Bureau, said: “Overdraft and credit card charges are often just as punitive as those charged by payday lenders. While most of the cases we encounter involve negotiating payment plans for clients who can’t afford their credit card payments, we also deal with double the number of cases of ‘extra charges’ and default fees applying to credit cards than payday loans."

The scale of the debt

Research into the true extent of credit card debt found that two-thirds of credit card holders only pay the interest off their balance each month, with one-fifth paying off the minimum amount required.

By only paying the minimum amount, it can take borrowers up to 17 years to repay average credit card debts of £4,500. After those 17 years, they will have repaid more than twice the value of the original debt. 

Over 50 percent of credit card debtors in the UK are also unaware how much interest they are being charged on their credit card balance. The average APR is 17.9 percent, although some are paying far more.

Many Brits are also guilty of underestimating the amount of time it will take before they are debt free. The average debtor believes it will take just three years to clear their debts, while only 13 percent think it will take more than ten years.

There is also a level of helplessness and panic that affects many of those with credit card debts. A shockingly high two-thirds of those questioned felt their current credit card debt was unmanageable, while a quarter admitted to feeling overwhelmed.

The research went into more detail, asking respondents to describe how they were affected by their debt:

20 percent admitted to having trouble sleeping
18 percent said they argued with friends and family
14 percent said they suffered from constant worry

Prevent spiralling debts

The FCA has proposed caps on the cost of payday loans to prevent debts from escalating beyond a debtor’s control. The caps are threefold. Firstly, there is an overall cap on interest of just 0.8 percent per day on new loans and loans rolled after the proposals have come into force. There is also a cap on default fees that cannot exceed £15. Finally, there is a total cost cap of 100 percent, which ensures borrowers will never have to pay more in fees and charges than the cost of their original loan.

Although the FCA have already said they will not be imposing caps on credit card charges, many industry commentators believe a similar cap would be a step in the right direction.

Are you struggling to repay credit card debts? Do you believe the industry would benefit from a cap on costs? We’d love to hear your thoughts on this issue, so please leave your comments below. 

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