Credit card borrowing in the UK soared in December 2022 – to its highest monthly level since 2004 – amid mounting pressure on household budgets due to the cost of living crisis.
The latest news from the Bank of England showed Britons borrowed almost an additional £1.5bn in all forms of consumer credit – of which £1.2bn was on credit cards, as concerns mounted over the impact of high inflation on struggling households.
Personal debt levels in the UK have been on the rise in recent years, and 2023 is on track to be no exception.
According to research conducted by broadband.deals, the average household in the UK is now carrying over £15,000 in debt, with credit card debt and personal loans being the biggest contributors.
How do I cut down on my household bills?
While it may seem overwhelming, there are ways to cut down on household expenses and reduce your debt levels. Here are a few tips to get you started:
- Create a budget: One of the most effective ways to reduce your debt is to have a clear understanding of where your money is going. Create a budget that includes all of your income and expenses and look for areas where you can cut back.
- Cut back on unnecessary expenses: Take a close look at your expenses and identify any that are unnecessary. This could include things like premium Sky packages, expensive gym memberships, or even your monthly broadband costs.
- Shop around for better deals: Whether it’s your car insurance, energy bills, or mobile phone contract, there are likely to be better deals available. Take the time to shop around and compare prices to make sure you’re getting the best deal.
- Consider consolidating your debt: If you have multiple credit card balances or personal loans, consider consolidating them into one loan with a lower interest rate. This can help make your debt more manageable and reduce the amount of interest you pay over a period of time.
- Seek professional advice: If you’re struggling to get a handle on your debt, it may be worth speaking to a financial advisor or debt counsellor. They can help you develop a plan to pay off your debt and provide support and guidance along the way.
Reducing your household expenses and paying off your debt can take time and effort, but it’s worth it in the long run.
With a budget, a plan to cut back on unnecessary expenses, and a commitment to paying off your debt, you can get back on track to financial freedom.
There are also concerns that households will face even more stretched budgets as interest rates continue to rise.
Will interest rates peak soon?
Interest rates play a crucial role in the economy as they affect the cost of borrowing money. When the BoE increases interest rates, it becomes more expensive for businesses and households to borrow money, which can lead to a decrease in spending and investment. This can slow down economic growth and lead to higher unemployment.
The Bank of England is the central bank of the United Kingdom and is responsible for setting the country’s monetary policy, including the interest rates at which it lends to other banks. Recently, the BoE has decided to increase interest rates, which has put pressure on households and businesses throughout the country.
For households, an increase in interest rates can be particularly challenging. Higher interest rates can mean that mortgage payments and credit card debt become more expensive, which can put a strain on household budgets. This can make it difficult for families to make ends meet and can lead to an increase in debt.
The BoE’s decision to increase interest rates is not without its reasons, however. The bank has stated that it needs to raise interest rates to combat rising inflation, which has been driven by factors such as the Brexit and the COVID-19 pandemic. The bank also said that the interest rate increase is a precautionary measure to prevent the economy from overheating, and it will help to maintain financial stability.
However, there is a concern that the interest rate increase could lead to a recession. Businesses and households may be unable to afford the higher interest rates, which could lead to a decrease in spending and investment, and in turn lead to job losses. This is a worrying prospect, especially given the current economic climate.