1 in 3 consumers face post-Christmas credit card crunch amid record interest rates

Klarna, the AI-powered payments network and shopping assistant, today announced new data showing that over half of UK adults are concerned about taking on credit card debt during the holiday season. Over a third believe they will be unable to pay off their Christmas credit card bill in full, meaning they will face the highest interest rates in 27 years, according to Bank of England data.

The average credit card interest rate hit 23.8% in October, the highest since December 1995. Credit card interest rates have risen sharply in recent months and over half of Brits no longer even know the interest rate they will face in January. A breakdown of credit card data from Money.co.uk data shows 1 in 3 credit card customers are ‘hardcore revolvers’ who make only the minimum monthly payments, often paying more in interest than the cost of their original purchase.

Worryingly, data from UK Finance shows that credit card spending was 10% higher in July 2023 than a year earlier and outstanding balances have increased by 8.7% since last year. Each credit card customer in the UK owes on average £1,675.

Klarna’s short-term, interest-free BNPL products offer a fairer and more sustainable alternative to credit cards, driving much better consumer outcomes. The average outstanding debt is £150, less than 10% that of credit cards, and overall default rates are at their lowest ever at less than 1%. In recent years Klarna has introduced a number of measures to support consumers including the credit industry’s first ‘credit opt-out’ button which allows consumers on a strict budget to take a break from Klarna’s credit products. To date, over 10,000 UK consumers have made use of the feature.

“Now, more than ever, consumers need access to low-cost credit which helps them spread the cost of larger payments without trapping them into cycles of long-term debt,” said Raji Behal, Head of Western and Southern Europe, UK & Ireland at Klarna.

The rising cost of goods and services has affected the shopping plans of 3 in 5 survey respondents this year. 65% plan to reduce spending on non-essential items, 55% will look for more budget-friendly items and 52% plan to shop for fewer items than previous Christmases.