Research from Britain’s number one comparison site moneysupermarket.com* has discovered the depth of reliance Brits have on credit cards as almost 5 million (14 per cent) admit to regularly using a credit card to pay their household bills, and a further 2.5 million withdraw cash on their cards, potentially costing them around £90 million per year.
Kevin Mountford, head of banking at moneysupermarket.com, said; “Used responsibly, credit cards can be an integral part of household budgeting but it’s alarming to see so many people using their cards to pay for what should be everyday spending. If you are using a card in this way, and not paying off the full balance each month, then you really do need to review your circumstances, as this is the first sign of financial difficulty.
“Sometimes a credit card can be a convenient way to pay for everyday items, but a rule of thumb is to finance a product over its useful lifespan. Funding a large purchase such as a TV over the length of an interest free period makes sense, however if you are paying for your weekly shop over several months, this is a real no-no. Those consumers who are turning to credit cards to fund basic household bills on a regular basis should be hearing alarm bells, as this habit needs to be avoided wherever possible – it’s really a case of robbing Peter to pay Paul.”
The research found that, whilst over half of Brits (55 per cent) use their plastic to fund big ticket items such as TVs and DVD players, spenders are also regularly using their plastic to pay for other everyday transactions such as grocery shopping (43 per cent) and buying petrol (38 per cent).
But a further seven per cent withdraw cash on their credit cards, potentially costing them a combined £90 million in fees annually. Two per cent of respondents use their cards for gambling, which most credit card providers treat as a cash transactions.
Kevin Mountford continued: “Taking out cash on your credit card can be an expensive business, with most cash transaction APRs well over 20 per cent. With the majority of cards your repayments will not clear this debt until debts on balance transfers and purchases have been fully repaid – as the cheapest debts get paid off first, this means you could be paying way over 20 per cent interest for some time.
“It’s no bad thing to use credit cards to help manage your outgoings occasionally but over the long-term, consumers need to be careful that they don’t fall into this debt trap. Many consumers will fund all their days to day spending on credit cards in order to maximise the rewards on offer on the card, but to benefit from this you need to pay off the full balance each month otherwise the interest you will pay outweighs any gains.”
If you would like discuss how our Debt Recovery/Debt Collection service can assist your business, please visit the ‘Debt Recovery/Debt Collection’ section on our website, contact us on +44 (0) 151 515 3014 or email us.