As millions struggle to finance their food and energy bills, banks and building societies are making life even harder by raising fees for those who are forced to borrow money just to pay their food bills. and energetic. Overdraft and credit card rates hit their highest level in a quarter century.
Britons are drowning in debt, with credit card users set to borrow a further £9billion over the next six months.
This will take the country’s total credit card debt to £69billion, a jump of 18%, according to subscription lender Creditspring.
One in six Britons, or 8.5 million in total, now have to borrow to make ends meet. That jumps to a third among those aged 18 to 34, said Creditspring co-founder Neil Kadagathur.
“One in four people living on incomes below £10,000 a year are terrified for their financial future. »
Yet as debts mount, the average credit card APR now charges a punitive rate of 21.49%, the highest in nearly a quarter century.
Banks are also raising their overdraft rates to take advantage of the growing number of people falling into the red as bills soar.
Overdraft rates are now averaging 34.07% after rising 62% since the start of the pandemic. In February 2020, overdraft rates were well below an average of 20.99%.
First Direct, HSBC, Halifax, Lloyds, M&S Bank, Nationwide, NatWest, TSB and others charge 39.90% for overdrafts. Barclays is close behind charging 35%.
Personal loan rates are well below 3.96% for those borrowing £10,000, but they are also rising.
They have climbed 17% against an average of 3.37% since September 2020.
Many applicants face rejection. Up to 15 million people are unable to obtain affordable credit from traditional banks and building societies, and risk falling victim to unscrupulous moneylenders and loan sharks, Kadagathur said.
READ MORE: Credit card borrowing will get ‘more expensive’ due to cost of living
Struggling borrowers should consider consolidating into cheaper loans, such as personal loans, if they can, advised David Hendry, director of marketing at Freedom Finance. “Otherwise, try to pay off your most expensive debt first, then move on to the next most expensive. »
Desperate consumers are now relying on the controversial “buy now, pay later” credit to buy basic necessities.
BNPL is typically used to spread the cost of large one-time expenses, but many are now using it to buy groceries, said Sarah Coles, senior personal finance analyst at Hargreaves Lansdown. “Monthly payments can be high while missed repayments will incur late fees. »
Half of young adults now use BNPL, said Kelli Fielding, chief executive of TransUnion Consumer Interactive.
They turn to credit for major purchases “like buying a car, or moving out of the family home, as well as for day-to-day finances,” she said.
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BNPL company Klarna will start reporting UK customer debts to credit agencies next month, which will punish those who fail to meet their repayments.
Brean Horne, personal finance expert at comparison site NerdWallet, said borrowers who use too much credit or miss monthly repayments, including energy bills, could find it difficult to get credit in the future. .
This could make it even more difficult for young people to qualify for a mortgage and move up the property ladder.
According to rival bank Shawbrook, one in four people now say managing money is their top concern, and almost one in five loses sleep.
Consumer communications manager Sally Conway said Britons face price hikes every day “it’s understandable that so many people feel overwhelmed”.
The numbers Googling the online search term “I can’t pay my bills” has jumped more than 400% in three months, credit management firm Lowell said.
It’s Mental Health Awareness Week and Lowell chief executive John Pears said: ‘It’s important for those struggling to know that there are many organizations that can offer support and advice. »
Citizens Advice, debt charity StepChange, National Debtline and government-funded referral service MoneyHelper offer free, independent advice. Beware of those who charge for debt management plans.