Brits got savvy in Christmas 2014
There was no great spike in credit card spending in November, despite the Black Friday shopping frenzy taking place during the month.
In fact, the credit card growth rate during November was lower than the yearly average at 4%, compared to 4.7%, according to the UK Cards Association (UKCA). By comparison, debit spending rose by 7.4% in November – but this too represented a slowdown from its own annual growth rate of 8%.
The rate of growth for debit and credit card spending has been slowing down since April 2014, when it peaked at 7.5% – in November, for example, it was 6.4%.
Predictably, debit card spending far outweighed credit card spending during November, at £34.4 billion and £14.1 billion respectively. But the gap between the two continued to widen, as it has throughout 2014, with £20.3 billion more spend on debit cards than credit during the month.
The figures dispel the myth that "consumers were getting in to debt to fund their festive celebrations", said the UKCA.
In November, spending on hobbies, toys and games was 50% than the previous month, while the amount spent on music was 30% higher, with a smaller uptick of around 20% recorded for sweet shops, gift shops and jewellers.
Richard Koch, head of policy at the UK Cards Association, said: "There is a popular myth that people splurge on their credit cards in order to pay for Christmas but our figures show that the reality is really quite different.
"Shoppers would still much prefer to pay using their debit card and there has been no spike in credit card spending as some commentators had predicted. In fact, four out of every five people (81%) now pay off their credit card in full every month and therefore are not charged interest."
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.