A personal finance analyst has claimed the era of debt repayment started fading in April and will likely be replaced by a summer of spending.
Data from UK Finance has revealed that in April, outstanding balances on credit card accounts had fallen by 12 per cent in a year to £53.3bn, but this is down from 19 per cent a month earlier. There were 33.9 million credit cards with balances at the end of the month, a seven per cent drop from April 2020.
The total spend of £13.7bn was up 59 per cent in a year, but down 22 per cent in two years.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said debt repayments are set to be replaced by spending.
She cited the Bank of England’s money and credit statistics which showed that consumers took out more credit than they paid off for the first time since August 2020, and the Bank’s credit conditions survey showed demand for new borrowing increased in the three months to June.
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“The golden era of debt repayment started fading in April, and is likely to be eclipsed entirely now the summer sending spree is upon us,” said Coles.
“Back in April we were still repaying more of our credit card debts than we were spending on plastic, and people continued to cut up their cards and close their accounts. However, as non-essential shops and pub gardens opened in April, the speed at which we paid off our card debts dropped significantly.
“The summer spending spree last year meant that in July and August we returned to spending more than we repaid on cards, and we can expect something similar this year too.
“However, before you dust off your credit card, it’s worth considering whether there are any alternatives. You may be able to cut costs elsewhere in your budget to free up cash to spend on the things you want to prioritise, so money you save on trading down at the supermarket or shopping around for cheaper bills can be spent on going out and having fun.”