Soaring living costs are putting serious pressure on our finances, prompting many people to borrow money to make ends meet.
Credit card balances have started to increase, according to data from trade body UK Finance, with balances up 3.8% year on year. There were 1.2bn contactless transactions in January 2022, up 78.7% compared to January 2021 and a 31% increase on January 2020.
Separate figures from the Bank of England show that demand for unsecured lending increased in the first three months of the year and is expected to increase further in the months to come.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown said: “Demand for loans and credit cards boomed at the start of this year. With inflation gathering momentum, and eye-watering price rises for many of the essentials, it has forced more of us to borrow to make ends meet. Credit card borrowing grew faster than any other month on record in February (the most recent month we have data for).
“But while this feels like a solution in the short term, you’re building up problems for the future, because you’re adding interest and repayments to the ever-growing mountain of monthly costs, which makes it harder and harder to stay on top of our finances each month.”
Managing your debts
The best way to manage your debts is to start by facing up to them. Make a list of all the companies you owe money too, and how much your monthly payments are.
You should then try to prioritise your repayments, concentrating on those which could affect the roof over your head first, such as your mortgage or rent.
You should also look to reduce the amount of interest you pay wherever possible. If, for example, you have credit cards charging a high annual percentage rate (APR), consider moving the balances held on these cards onto balance transfer cards offering an introductory 0% period for several months.
If you are still finding your debt payments unaffordable, then you need to come up with a debt management plan with your creditors. Speak to them as soon as possible and let them know you are having problems – for example, you may be able to negotiate lower payments over a longer period of time.
If you feel as though your debts are starting to spiral out of control, seek professional help as soon as possible.
Myron Jobson, senior personal finance analyst at interactive investor, said: “Those struggling with debt do not have to suffer in silence – there is support out there. The key is to act swiftly and contact creditors for more support. It is worth consulting a debt advice charity such as StepChange or Turn2Us and they will go through all of your options.”
You should also look into whether you might be entitled to claim any benefits to help you cover costs. Several charities including Turn2Us and Entitledto offer online calculators to help you work out how much you may be eligible to get.