Credit card spending is on the rise again, according to new figures from UK Finance.
Credit card transactions were up by 26.9 per cent in March, month-on-month, with £14.1bn spent over the course of the month – 28.9 per cent higher than the amount spent in February.
However, credit card spending has not yet returned to pre-Covid levels, with 6.5 per cent fewer credit card transactions in March 2021 compared with March 2020.
UK Finance found that outstanding balances on credit card accounts have contracted by 18.5 per cent over the twelve months to March 2021, as a result of repayments outstripping new borrowing in the year.
Meanwhile, debit card transactions rose to £56.2bn in March 2021, representing a 21.4 per cent increase on February 2021, and a 2.9 per cent increase from March 2020.
Hargreaves Lansdown’s personal finance analyst Sarah Coles said that the new UK Finance figures suggest that a rise in spending could lead to the creation of more consumer debt.
“A year into the crisis, we’d made major inroads into paying off expensive credit card debts, but as the economy has started opening up again, our repayments are lower, and we’ve started spending more,” Coles said.
“There’s a risk that vital and exciting new freedoms in life more generally could threaten our newfound freedom from debt.”
By the end of March, UK credit card holders had repaid a fifth of their credit card balances and cut the number of cards with amounts outstanding at the end of the month by 11 per cent.
“ONS data shows that spending on debit and credit cards has gradually been increasing from early lockdown lows,” Coles added. “And more up-to-data figures show that when restrictions lifted in April, they surged above their pre-pandemic levels.
“Spending on cards doesn’t necessarily always feed into more debt…but it’s worth noting that repayments have slowed throughout early 2021.
“It means we haven’t changed our approach to debt entirely. As soon as they have the opportunity, people will spend again, and many of them will borrow to do so. But before you slip back into old habits, it’s worth thinking carefully about your spending, and whether you can cut costs in some parts of your budget to free up cash to spend on the things you want to prioritise.
“Because while we’ve all been looking forward to a bit more freedom in life, we shouldn’t have to give up our newfound freedom from debt to enjoy it.”