Credit card debt is soaring: in 2016, 4.5 million people in the UK took out a new credit card, gaining access to billions of pounds of borrowing. Unsurprisingly, the growth of debt is raising concerns over how people will ever pay this money back, but the picture isn't quite as simple as all that: not all borrowing is the same.
A new study by MoneySuperMarket looked at the credit cards people search for, and the reasons they gave for seeking new ways to borrow. They have access to enormous amounts of data, as a Brit uses its Smart Search Service to check their eligibility for certain cards once every 20 seconds.
Their research revealed there are four reasons Brits hunt for cards - and some of them are far more alarming than others.
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Paying off debt
Some 28% of people are searching for 0% balance transfer cards, so they can move debt to a new account and pay it of without interest.
The UK hotspot for this kind of search is South Lanarkshire in Scotland - where there are 8.1 enquiries per 1,000 residents.
Lisburn and Castlereagh in Northern Ireland
Is this sensible?
This can be perfectly sensible, as long as you have the discipline to repay the cash, and have a realistic repayment plan. Unfortunately, research by the Financial Conduct Authority shows this isn't always possible - only half of people with these cards repay the full amount of the transferred balance by the end of the promotional period, increasing to 30% three months later and 71% three months after that.
Whether this kind of borrowing is worrying therefore comes down to where people are in their cycle of debt. In some cases, this is the point at which they have taken control, and this is the card that will turn their finances around, so they stop borrowing and get back on top of their debt. In other cases, it's a desperate attempt to get back on top of their finances, doomed by the fact they are still living beyond their means. Unfortunately, the card will simply postpone the inevitable day of reckoning - by which time they may have build up even more debt.
There are people searching for cards with 0% rates on purchases - or low-rate cards - to cover large purchases they haven't been able to save for, and want to spread the cost without paying over-the-odds in interest charges. The UK hotspot for this kind of borrowing is Copeland in Cumbria.
Top 10 hotspots for 0% on purchase or low rate cards
7. Castle Point
Is this sensible?
In an ideal world we will have saved for the unexpected - or for regular chunky outlays. If we haven't saved, and we cannot avoid the spending, then this is the next best option. As long as we use the card to spread the cost and pay it off before the 0% period ends, then it will have proved a useful tool.
This kind of borrowing only becomes worrying when we get into the habit, and start to use the cards at times when we could have simply avoided spending the money - such as taking a holiday. It also starts to ring alarm bells when we use it to spend money we hadn't planned to spend, and fail to clear the debt before the end of the 0% period.
Building a Credit History
There are plenty of people who either have no credit history, or have had problems in the past. They are searching for a card that allows them to build a history from scratch. The hotspot for this kind of borrowing is Blackpool in Lancashire.
Top 10 hotspots for cards to build a credit history
2. West Dunbartonshire
3. Dundee City
8. North Ayrshire
Is this sensible?
In some cases, there's nothing untoward at all about this kind of card. Young people or those who have never borrowed, take a card and manage it carefully, to build a credit history. This may then help them with a mortgage application further down the line.
In other cases, it's a sign of worrying borrowing behaviour in the past, which has damaged their credit history so badly that they need to start from scratch.
Finally, there's the even more worrying scenario, where someone has real problems with borrowing and managing their finances, and is desperate to borrow at any cost - and this is the only kind of card they expect to be able to get. The high interest rates attached to these cards means they will simply add more debt and interest to a growing debt problem.
MoneySuperMarket mapped enquiries for this kind of card against income deprivation, and found that the worse people's incomes were, the more likely they were to turn to these sorts of cards. They also found that the average income for someone looking for this kind of card was £19,862.
There are also people looking for cards which offer rewards or cashback on everyday spending - or particularly favourable rates for people spending overseas. The most enquiries for this kind of card come from the City of London.
Top 10 hotspots for rewards and overseas cards
1. City of London
3. Tower Hamlets
6. Hammersmith and Fulham
9. Surrey Heath
10 Richmond upon Thames
Is this sensible?
The fact that there are so many wealthy areas on this list is an indication that the majority of these people plan to borrow sensibly, and either make or save money through their credit card use. This is also reflected in the fact that their average salary of £34,446 is far higher than alternative types of card, 60% of them own their own home, and that someone earning more than £40,000 is almost three times more likely to search for this kind of card than someone who earns less.
Used correctly, these are a great way to make money on your everyday spending, or keep costs down when you are travelling. The only time when use of these cards backfires is if you fail to pay in full and on time - which will erode the value of any benefits and usually leave you worse off than if you'd not bothered with the card at all.
Clearly, therefore, all of these cards, used in the right way, can be useful debt management tools that can actively make it easier for people to look after their finances. The risk is that millions of people may be searching for cards for the wrong reason, and could simply end up making their debt problems even worse.