As the cost of living increases, more households in the UK are relying on credit cards to manage everyday expenses like groceries, clothing, transport, childcare and bills. For many, credit cards are no longer reserved for big purchases such as holidays, house renovations or a new car, they’re increasingly being used as a way to stay on top of day-to-day spending. Not only does increasing British credit card debt impact individual households, it also impacts the wider UK economy.
Why is British Credit Card Debt Rising?
Increasing levels of British credit card debt suggests that many people are feeling a financial strain at the moment, to the point of having to use a credit card for day-to-day expenses, rather than saving it for expensive or optional luxuries. People are falling into a cycle of debt that’s difficult to break out of, especially with interest rates so high. With accumulating balances and high interest rates, a lot of people are struggling to reduce their debt. Monthly credit card payments go towards paying off interest rather than reducing the original debt, making debt difficult to overcome.
This reliance on credit cards in the UK highlights a gap between income and the cost of living. It means many people have less money available for emergency savings, investments, education, or homeownership, all of which negatively impact the economy as a whole. With a credit card being used for daily expenses, there’s very little chance of money being available for optional extras. As living costs rise and high interest rates continue, UK households are feeling the strain, making it harder for people to overcome the ongoing cycle of credit card debt.
What Does This Mean for the Economy?
The increase in British credit card debt also creates challenges for the UK economy. When households spend more on paying off personal debt and keeping up with credit card payments, they tend to spend less on goods and services, which can affect economic growth. Lower consumer spending means businesses face a reduction in demand, which can impact revenue and lead to slower job growth.
Rising credit card debt also affects the housing market. People with a substantial amount of credit card debt find it harder to save for house deposits and are less likely to get a mortgage, which puts homeownership rates at risk. This impacts the housing market and has a knock on effect on related industries, such as construction, household goods and estate agencies.
Though it’s impossible to immediately put a stop to the public’s reliance on credit cards – after all, we can’t simply take credit cards out of the equation overnight and hope people can still afford their living costs – it’s important to limit the negative effects of credit card debt on individuals and the UK economy as much as possible. Fewer people relying on credit cards will have a positive impact on consumer spending, making the UK economy more stable and financially secure going forward. Get in touch with Cobra Financial to find out more.
