Credit cards make it easy to pay for things, but they can also lead to debt if not used carefully. Many people ask, ‘How much credit card debt is normal?’ Knowing the average amount of debt others have can help you understand your own situation better. By looking at typical debt levels and the signs of having too much debt, you can take steps to keep your finances healthy.
This guide will help you understand what is considered normal and how to manage your credit card debt wisely. So, read on as we unveil the details.
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What is Credit Card Debt?
Have you ever wondered, ‘How much credit card debt is normal?’ Every time you use your credit card, you’re borrowing money, creating credit card debt. While some people manage their debt efficiently by paying off their balance each month, others find themselves struggling. So, what exactly is credit card debt?
Credit card debt accumulates when you use your card for purchases but don’t pay off the entire balance at the end of the month. This leads to interest charges, which can quickly turn a manageable balance into a significant financial burden.
The convenience of credit cards often masks the potential for debt, making it easy to overlook the growing balance until it becomes problematic.
Credit card debt can be classified into two main types: revolving and non-revolving. Revolving debt means carrying a balance from month to month, which accrues interest. Non-revolving debt, on the other hand, is when you pay off your balance in full each month, avoiding interest charges. Understanding these distinctions is crucial in managing your financial health.
How Many People In The UK Have Credit Card Debt?
Millions in the UK rely on credit cards, whether for daily expenses or emergencies. According to recent statistics, over two-thirds of UK adults own at least one credit card. Astonishingly, about two-thirds of these cards carry a balance at the end of the month, indicating widespread reliance on credit.
With projections suggesting that by 2025, 71% of the population could have a credit card, understanding what constitutes normal credit card debt is more crucial than ever. The rise in credit card ownership reflects changing consumer behaviours and the increasing cost of living, making it essential to monitor your credit card usage.
Additionally, the average credit card debt per UK household continues to climb, reflecting economic pressures and spending habits. As more people turn to credit cards to bridge financial gaps, the importance of managing this debt responsibly becomes even more critical.
If you’re struggling with credit card debt as well, worry not. Reach out to our Money Advisor team for guidance on the best course of action:
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How Much Credit Card Debt is Normal?
So, what is a normal amount of credit card debt? According to The Money Charity, the average credit card debt per UK household was £2,363 as of June 2023. This equates to approximately £1,248 per adult.
It’s important to remember that what’s normal for one person may not be for another. Your acceptable level of debt depends on factors like income, spending habits, and other financial obligations. Comparing your debt to national averages can provide perspective, but it shouldn’t be the sole determinant of your financial health.
Moreover, the concept of normalcy in credit card debt is highly subjective. For some, carrying a small balance may be manageable, while others may struggle with any amount of debt. Evaluating your financial stability, budgeting practices, and long-term financial goals is essential.
How Much Credit Card Debt Is ‘Too Much’?
Financial experts recommend keeping your credit card utilisation below 30%. This means if your credit limit is £1,000, your balance should stay under £300.
Another important metric is your debt-to-income ratio (DTI). This ratio, which includes all debts, should ideally be below 40%. A higher DTI can affect your ability to secure additional credit. A high DTI not only indicates excessive debt but also signals potential financial distress to lenders.
Too much credit card debt can also strain your monthly budget, making it challenging to cover essential expenses. If your debt payments consume a significant portion of your income, it may be time to reassess your financial strategy. The psychological impact of excessive debt cannot be overlooked either, as it can lead to stress and anxiety.
Signs You May Have Too Much Credit Card Debt
Could you be carrying too much credit card debt? Here are some warning signs:
- Struggling to make minimum payments each month
- Your balance is increasing rather than decreasing
- Unable to afford essentials like rent or bills due to debt payments
- Juggling multiple credit card repayments
- Seeing a decline in your credit score
Recognising these signs can help you take action before your debt becomes unmanageable. If you’re only able to make minimum payments, it indicates that your debt is growing rather than shrinking. Similarly, an increasing balance suggests that interest charges are outpacing your payments.
In addition, if your credit card debt is affecting your ability to cover essential expenses, it’s a clear indicator that you need to address the situation. Multiple repayments can lead to confusion and missed payments, further damaging your credit score. Monitoring your credit score regularly can provide insights into how well you’re managing your debt.
Debt Management Plans: An Effective Solution
If you’re feeling overwhelmed by credit card debt, A Debt Management Plan (DMP) could be the solution. A DMP consolidates your debts into one manageable monthly payment.
A DMP provider negotiates with your creditors on your behalf, potentially reducing interest rates and fees. They create an affordable payment plan, relieving the emotional stress of debt. By simplifying your repayments, a DMP helps you regain control of your finances.
DMPs are particularly beneficial for those with multiple non-priority debts, such as credit cards. They provide a structured approach to debt repayment, helping you avoid further financial complications. Seeking professional advice before enrolling in a DMP is crucial to ensure it aligns with your financial situation.
Other Debt Solutions
If you want an alternative debt solution, consider the following options:
Individual Voluntary Arrangement (IVA) is a legally binding agreement between you and your creditors to repay your debts through a plan tailored to your financial situation.
As a formal and legal debt solution, both you and your creditors are required to adhere to the terms of the agreement. Once you enter an IVA, your creditors cannot take further action against you.
An IVA is established and managed by an Insolvency Practitioner (IP). In an IVA, a single monthly payment is agreed upon based on your current financial circumstances, which is then distributed among your creditors.
Throughout the duration of your IVA, all interest and fees on your debts are frozen. At the end of the IVA, there’s a chance that your remaining debts may be forgiven.
Debt Relief Orders (DRO) are a potential debt solution for individuals with debts of £30,000 or less, a maximum disposable income of £75, and assets (including property and vehicles) or savings and investments worth no more than £2,000.
Introduced by the UK parliament in 2007 as an alternative to bankruptcy, DROs have since been utilised by thousands of individuals facing financial difficulties in England, Northern Ireland, and Wales.
Like most debt solutions, applying for a DRO has its advantages and disadvantages. Its suitability depends on your unique circumstances and financial situation. Therefore, it’s crucial to seek debt advice before deciding to apply for a DRO.
Bankruptcy is the most widely recognised type of insolvency. It aids in managing debts that you cannot repay within a reasonable timeframe. This legal procedure allows you to discharge debts that you haven’t been able to settle, and it might involve liquidating some of your assets, including personal belongings and property.
Typically, bankruptcy lasts for one year, but it can extend longer depending on your situation. You might be obligated to make payments towards your bankruptcy for up to three years.
Bankruptcy can only be declared if you reside in England, Wales, or Northern Ireland.
Additional Advice and Guidance
Understanding and managing your credit card debt is essential for financial stability. If you’re asking, ‘How much credit card debt is normal?’ or feeling overwhelmed, our Money Advisor team can help you.
We specialise in personalised debt solutions, guiding you towards repaying unsecured debts. Ready to regain control of your finances? Our team of experts is here to provide the support and guidance you need.
Contact us today to explore your options and start your journey towards financial freedom. So, feel free to fill out our online form, and our team will get back to you.
Alternatively, note that the UK also has many debt charities that offer advice and debt guidance for free. Some of these debt charities are as follows:
- National Debtline
- StepChange
- Citizens Advice
Key Points
- Credit card debt accumulates when balances aren’t paid off monthly, leading to interest charges.
- Over two-thirds of UK adults have credit cards, with a significant portion carrying balances month-to-month.
- As of June 2023, the average UK household credit card debt was £2,363, or £1,248 per adult.
- Keeping credit card utilisation below 30% and maintaining a debt-to-income ratio under 40% are key benchmarks.
- Struggling with minimum payments, increasing balances, and missed payments are indicators of excessive debt.
- A Debt Management Plan (DMP) can help consolidate debts into a manageable monthly payment.
FAQs
A high credit card utilisation rate is typically considered to be above 30%. This means if your credit limit is £1,000, carrying a balance of over £300 is seen as high. Keeping your utilisation rate low can help improve your credit score and reduce the risk of accruing too much debt.
Credit card debt impacts your credit score in several ways. High balances can increase your credit utilisation ratio, which can lower your score. Additionally, missed or late payments can negatively affect your score. Managing your debt responsibly by making timely payments and keeping balances low can help maintain a healthy credit score.
Yes, you can negotiate your credit card interest rates. Contact your credit card issuer and request a lower rate, especially if you have a good payment history. Lower interest rates make it easier to pay off your debt faster and reduce the overall amount you owe.
Paying off credit card debt faster can be achieved through several strategies:
- Paying more than the minimum payment each month.
- Focusing on paying off cards with the highest interest rates first.
- Consolidating debt through a balance transfer to a card with a lower interest rate.
- Cutting unnecessary expenses to allocate more funds towards debt repayment.
Deciding whether to pay off credit card debt or save money depends on your financial situation. Generally, paying off high-interest credit card debt should be a priority because it accrues interest faster than most savings accounts. However, maintaining a small emergency fund while paying down debt can provide a financial safety net for unexpected expenses.
