Credit card lending has fallen by its largest monthly amount in more than five years, figures released by the Bank of England have shown.
The figures show that consumers are trying to pay down their debts in these economically challenging times, rather than borrow more money for the short term.
The central bank’s figures show that credit card repayments outstripped borrowing on plastic by £118 million in April.
This is largest amount since August 2006, when credit card repayments outstripped borrowing by £152 million. Other types of borrowing were also down, suggesting that consumers are being more careful with their money in the double dip recession.
It was found that other types of personal lending rose by £400 million in April, a slower increase than the £500 million worth of lending in March.
“A cautious approach to credit card debt in the current climate is no bad thing,” said William Hunter, of Hunter Wealth Management.
“Many households have a fair amount of debt already and so a move away from credit card debt is far more sensible than ‘maxing out’.”
The figures from the Bank of England follow a report by PricewaterhouseCoopers, which suggested that credit card use could fall into a steady decline in the years to come.
It was suggested that the traditional credit card could be replaced by different types of lenders, offering consumers a broader selection of credit services.
“Households are favouring paying down debt, rather than undertaking new borrowing. Demand for credit will remain contained through 2012 amid lingering job security concerns,” said Melanie Bowler, an economist at Moody’s Analytics.
Overall, the Bank of England’s figures showed that lending to individuals went up by £1.4 billion in April – in line with the average for the previous six months.
The £400 million figure for other types of lending, including personal loans and payday loans, shows that Brits are still in danger of falling into heavy debt.
“Interestingly however, there has been something of a boom over the past year in demand for relatively new payday loans, which offer short-term loans designed to be repaid typically within a month-and-a-half,” added Ms Bowler.
“With these bridging loans offering exorbitant repayment rates, the risk of UK households actually falling deeper into debt is increasing.”
If you are keen to avoid falling into credit card debt in the current economic climate, consider taking out a prepaid card. These work much like credit cards, but only allow you to spend a pre-loaded amount – thereby avoiding high levels of debt.