Why is credit card use at its highest in 20 years?

Why is credit card use at its highest in 20 years?
Why is credit card use at its highest in 20 years?Why is credit card use at its highest in 20 years?

The Bank of England has recently released data to show that credit card borrowing increased in November in 2022 to the highest monthly levels since 2004. Credit card borrowing is debt.

We all know we’re in the middle of a cost-of-living crisis. Published on 18th January 2023, the Consumer Prices Index annual rate (CPI), which is the ‘basket’ of items used to calculate the national inflation rate, rose by 10.5% in the 12 months to December 2022.

The CPI rate is down from 10.7% in November 2022. And whilst this is a small decrease - so going in the right direction - it still means prices are considerably higher than 12 months previously. Prices are still rising, just at a slightly slower rate.

The annual growth of credit card borrowing in the UK rose from 11.5% to 12.2% in November 2022.

The increase in credit card borrowing came before the higher spending rates for the festive season, and is indicative of the reality of the cost-of-living crisis biting. This is along with the increased costs of heating the home as we moved into the colder weather and the lifting in the energy price cap which came into effect in October 2022.

But what does this mean to the person on the street?

The UK’s target inflation rate is 2%. When inflation rises, the Bank of England increases the interest rate to try and curb spending. The interest has risen nine times in the last 12 months. It now sits at 3.5% which is the highest interest rate in 14 years.

With higher levels of borrowing on credit cards, combined with the increase in the interest rate, purchases are not only at a higher cost than they were 12 months ago, but they’re also more expensive to pay back. There are millions of people in the UK, however, that are struggling to make ends meet without borrowing more money on credit cards.

Monthly bills are the main cause of increased personal debt and stress for half of the adults living in the UK. It’s also reported that 46% of 25-34-year-olds have taken out an additional credit card or loan to cover their increased costs of living.

The average adult’s debt in the UK is now £34,566, up from £25,879 in 2022. This does not include mortgage debt.


What’s the impact on employees of increased levels of debt?

Mental health is one of the main causes of absenteeism in the workplace and this can be brought about by financial stress. Not only does financial stress have a significant detrimental effect on mental health, it can also lead to a decline in physical well-being too. Those that are in low-paid jobs, have lower numeracy skills and have less understanding of finance are usually impacted harder.

Absenteeism obviously effects employers and businesses and leads to a reduction in productivity. It’s important for business-health to try and support employees through these harder financial times.


How does PayCaptain help?

PayCaptain is a cloud-based payroll solution that's beneficial for both employers and employees.

From the employer’s perspective, PayCaptain makes processing payroll easier, quicker and – because of the high levels of automation – results in fewer payroll processing mistakes. This frees the employer and their team up to concentrate on other areas of the business and reducing the impact on employers after payroll because of the eradication of mistakes.

From an employee’s perspective, PayCaptain has been built to improve financial wellness and has a range of innovative functions built in to the solution to do this.

There are several pieces of functionality that can help employees reduce their credit card debt:

- Payment splitting – this is a function where employees can make payments direct from their net pay to reduce their borrowing. Making payments directly from their net pay, employees eliminate the risk of missing these important payments. Payment splitting also helps employees improve their credit score and keeps their record unblemished by late or missed payments.

Payment splitting can also be used to make payments to friends, family members or landlords, for example, direct from their pay.

- Money planning tool and personalised budget – this is where employees can create their personalised budget of incomings and outgoings, so they have a better understanding of what disposable income they have.

This is a very useful tool when it comes to credit card debt as employees can see if they have any ‘excess’ funds in their budget. If they have ‘spare’ money, they can to over-pay minimum payments on credit cards so they reduce their borrowing faster.

- Personalised financial guidance is available through the PayCaptain app in partnership with Money Helper. Employees can access trusted, impartial and confidential financial guidance and can discuss methods of reducing their borrowing. If employees are seriously struggling, Money Helper can also provide guidance on how to speak to creditors and about prioritising payments to improve financial wellness.


- On-demand pay and weekly advances. This is where an employee can access £200 Emergency Cash from up to 60% of their accrued earnings ahead of pay day. This can help ease the burden of a financial shortfall and help employees to meet their short-term financial obligations. These benefits may prevent them having to use their credit cards to make up a shortfall in monthly budget.

Monthly paid employees can also ease immediate financial pressures by using the automatic Weekly Advances feature. Employees can access up to £50 of their accrued earnings each week, paid directly into their bank account every Monday morning.

- PayCaptain is a Plain Numbers partner. Plain Numbers is a social enterprise that helps businesses communicate numbers more effectively to their customers. By using a Plain Numbers approach, research shows that double the number of customers are able to understand the communications they’re receiving.


The same approach is being applied in the partnership between PayCaptain and Plain Numbers for the benefit of employees. By adopting the Plain Numbers approach, employees have a clearer understanding of payslips. This leads to employees being more engaged with their payroll. They can make more informed decisions about their finances and benefit from greater financial well-being from the increased knowledge.

It’s important for employers to support their teams through this current cost of living crisis. By educating employees about credit and offering a great payroll experience, employers can help their teams to reduce their credit card borrowing and offer features and support to manage their money more effectively.