Zopa reveals the extent of UK credit card debt with their Back-to-Black report

• £810 million – the shocking amount paid in balance transfer fees in the UK^.iv
• Nearly half (49%) of credit card 0% balance transfers are not repaid within the 0% period
• A quarter of people who own credit cards and store cards have been building up their debt over five years or more
• The average UK resident carries debt of almost £10,000
• Almost a third (£2,855) of this is attributed to credit cards
• 16 million^[i] credit card and store cardholders don’t know how much their card charges for purchases if their bills are not repaid in full.

Peer-to-peer lender Zopa has revealed that credit cardholders who are trying to improve their financial situation may not be getting as good a deal as they think, with over £800 million being spent in balance transfer fees in the UK alone.^iv In addition to this, a quarter of people who own credit cards and store cards are also continuously building up their debt over five years or more. The report, compiled by personal finance expert Mike Naylor, reveals the pitfalls and unexpected costs of using credit cards.

The cost of 0% balance transfers

The research shows that just under half (49%) of 0% credit card balance transfers ended with a balance still outstanding on the card. From the survey the average balance transferred to a 0% balance transfer card is £1,855 – with an average balance transfer fee of 2.52%^[ii] or £46.75.^[iii]

1 in 7 cardholders leave a balance on a card for more than a year at a cost of £223 per year in interest charges. The total interest charged on balances left on credit cards after 0% balance transfers have ended is estimated to be £443 million. ^[iv]

Just over a quarter of people (27%) did not get the full benefit of the balance transfer because the card company ended it early. This would mean that as many as 4.7 million^[v] credit and store cardholders have had their 0% balance transfer taken away before it ended because they missed a repayment (9%), paid late (13%) or exceeded their credit limit (8%).

For the 13 million customers who are not on 0% balance transfer deals and have an average debt size of £2,855 on credit cards, it would take just over 7 years to repay completely. In the process the customer will have paid £1,336 in interest alone in cases more than the original balance itself.

Debt worries

The average debt of respondents in the survey is £9,513 with credit cards making up the largest proportion of their debts, with average credit card debt in the UK being £2,855. Despite this, worryingly 42% of people said they never or rarely think about their debts.

A quarter of people with debts on credit cards and store cards admitted to building up their debt for five years or more, with the average length of built up debt being three years. On average cardholders expect it to take two years to clear their debts although 1 in 10 people expect it to take five years or longer.

Lack of knowledge about their cards

Just under a half (46%) of credit and store cardholders know how much their card charges for purchases if their bills are not repaid in full. This means that around 16 million ^[vi] store and credit cardholders don’t know what interest rate their card charges if they don’t pay their bills in full.

How do they choose credit?

When choosing to borrow money, the five most important factors people look for are interest rates (57%), the total cost of credit (42%), and the ability to repay debts early without penalty (33%), having fixed repayments (20%) and being able to have a repayment plan that clears the debt (16%).

The most popular alternatives to credit cards to repay debt faster people have considered are personal loans (18%), borrowing from friends and family (14%) and payday loans (11%), which have interest rates of up to 5,853%^viii.

Giles Andrews, CEO and Co-founder of Zopa comments, “It’s clear that consumers who have credit card debts will struggle to become debt free and end up carrying sizable debt for a number of years. Credit card companies know full well that around half of customers may not pay off the full amount and are betting against you to fail from the start.”

He continues, “Consumers need to stop thinking of “loans” as a dirty word. Loans and credit cards are both forms of debt, but loans can be much cheaper than credit cards, especially for millions people that struggle to pay off their credit cards. Zopa has helped thousands of borrowers become debt free by providing low cost loans from as little as 4.4% Rep APR. We think consumers deserve an affordable monthly payment plan and an option to pay off early at no extra cost in order to get back-to-black.”

Personal finance expert Mike Naylor, who authored the report, said, “This research shows that there are still plenty of problems with credit cards that can catch people out and cost them dearly. With the FCA reviewing credit cards and RBS already deciding to scrap 0% balance transfer deals because they ‘trap people in a spiral of debt that they never pay down’ I expect we may see some significant changes in the credit card market in the coming months.’

Mike continued, ‘I would urge anyone with a credit card to sit down and work out if they are getting a good deal and if there are any better options they could use to repay their debts. Of course anyone struggling with debt should get some free debt advice.”