Families facing a £30bn interest free credit card time bomb

Fears are growing over Britain’s debt time bomb after figures revealed as much as £30billion is sitting on zero-interest credit cards.

Consumers have embarked on a borrowing binge since the financial crisis, lured by card firms offering 0 per cent interest introductory offers.

But experts warn that families will struggle to deal with their debts once the interest-free period ends, leaving them facing monthly credit card bills that many cannot afford to pay.

James Daley of consumer group Fairer Finance said: ‘People who have built up debts on long zero-interest periods are going to find it incredibly painful when that ends and they start getting charged interests. 

‘There’s a risk of a hard landing at the end of this with households finding themselves locked into paying high interest rates.’

The longest interest-free deal on the market currently gives spenders 31 months before they have to start paying.

Around 45 per cent of the nation’s £66.5billion credit card debt is not generating interest at present, according to industry body UK Finance, with the vast majority of this thought to be due to this practice.

Spending on cards is growing at the fastest rate for 12 years amid concerns a vast bubble is blowing up. But the Bank of England has warned against over-generous 0 per cent offers due to fears they could harm the economy.

And it is hiking interest rates after a decade of record lows, meaning that banks which do offer the deals will find it harder and harder to do so.

There are fears that millions of families could be forced to pay interest on their debt as a result, leading to a dramatic spending slowdown and a wave of defaults.

Justin Modray of financial advice firm Candid Money said: ‘People are probably spending quite freely on credit cards at the moment, but if we see interest rates rise and mortgage costs go up then things could change dramatically.

‘People are used to borrowing at the lowest interest rates we’ve seen for a generation, and when that changes, if people don’t change their borrowing habits, they’ll be in for a shock.’

Credit card spending rose by 8.3 per cent in the year to February – its fastest expansion since 2006 when the pre-crisis economy was in its final, most reckless, phase of growth. 

There were 220m credit card transactions in the UK in February, up 3.3 per cent on a year earlier.

The Bank of England warned in October that household borrowing was ‘a pocket of risk’ in the economy and added that banks’ losses from consumer credit could hit £30billion in a protracted downturn – a fifth of the total consumer debt.