Take a look in you wallet. As well as your debit card, receipts and photos of loved ones, what else is in there? A credit card? Two credit cards? Three?
This week marked the 50th anniversary of the credit card. In the year that England last won the World Cup (yes, I know football is a sore topic at the moment), The Beatles released Revolver and the inaugural Star Trek episode was broadcast, Barclaycard was the first company to issue these innocuous bits of plastic.
The company sent out some 1.25 million plastic cards to Barclays customers from 29 June 1966. Half a century later and the bank says it has 10.5 million consumer customers as well as many more business clients. Overall, about 60 million credit cards are in circulation in the UK. According to The UK Cards Association, we spent £15 billion using credit cards in April alone.
There’s no doubt that credit cards are useful, particularly now that that new technologies allow contactless and mobile payments (in 2015, £7.75 billion was spent using contactless cards, compared to £2.32 billion in 2014). But is our spending out of control? Can we be trusted with plastic?
New research from MoneySuperMarket has revealed that more than a third of Britons have been saddled with credit card debt for up to ten years. This equates to 19 million people who have been reliant on plastic for up to a decade.
The analysis also found that as many as seven in ten UK adults currently own a credit card, with 35 per cent having more than one. Credit card holders have owned a card for an average length of 16 years.
There’s more. Three fifths of credit card holders currently owe money on it, with the average amount being £891, increasing to £1,215 for 18 to 34-year-olds. On average, this debt has been sitting there for more than two years. Overall almost two fifths of UK credit card holders do not clear their balance in full at the end of each month, with just 28 per cent managing to pay off more than the minimum amount required, and eight per cent paying off just the minimum amount. A further two per cent struggle to or can never afford to pay off the minimum amount each month.
None of this comes as a surprise. I don’t know what I’d do without my credit card, and I’m as guilty as the next person when it comes to buying things I don’t need with money I don’t have. Maybe it’s because that’s the culture I grew up in or maybe I just don’t have any shopping self control.
Kevin Mountford, banking expert at MoneySuperMarket, said: ‘We’ve come a long way since the first credit card was created 50 years ago – now there is a huge variety of products to suit different types of spending, and consumers have been able to benefit from increasing rivalry between providers. The balance transfer card market has been extremely competitive with providers increasing the duration of the fee free period, and cutting fees. It’ll be interesting to see how much longer this competition can last but consumers should make the most of the deals while they can.
‘The added consideration, following last week’s decision, is around Brexit. There’s been a number of new EU regulations on credit cards, most recently on interchange fees. But it would be very unlikely that any of these are reversed in the near future, and seeing the credit card is a global market, we wouldn’t expect to see any changes in the short term.’
It’s also likely that a sizeable number of credit card holders won’t be paying off their debt in the short term. Of course, this is what lenders want. Back in 1966, Barclaycard charged an annual interest rate of 1.5 per cent. Today the average credit card rate is 18.9 per cent – and many cards charge much more. It’s possible to be in debt to a credit card for a lifetime.
The StepChange debt charity has previously called for an end to unrequested credit card limit increases, which it believes are making debt problems worse for thousands of people. A recent survey showed 54 per cent of its clients had received an unrequested limit increase, making debt problems worse for half of them. The charity has also called for changes to minimum repayments on credit cards, which it says could cut both repayment periods and the amount of interest paid.
But I wouldn’t hold your breath waiting for lenders to treat their customers more fairly. Instead, why not take a close look at your finances? It may be that switching to a card with a 0 per cent interest introductory period makes financial sense. For a small fee of around 2 to 4 per cent, a balance transfer card or money transfer card will allow you to shift the debt. Cards from the likes of Sainsbury’s Bank, Halifax, Tesco and Virgin Money now offer 40 months interest-free deals.
Helen Nugent is Online Money Editor of The Spectator