A report published today by moneysupermarket.co.uk shows that 1 in 7 Britons are using credit cards to pay for day to day household expenditure and a further 7% are using their credit cards as a source of cash, despite punitive rates or interest and sky-high charges.
This trend may point towards a growing number of families struggling to get by and so turning to credit cards as a quick and easy (but dangerous) way of making ends meet during tough times, especially as unemployment continues to rise.
However, this trend may not just be about the current economic situation. The UK’s leading credit card issuers have spent millions in recent years bombarding the public with marketing campaigns offering everything from Tesco Clubcard points, Sainsbury’s Nectar points, Airmiles to cashback awards and so on, in return for using their credit cards.
Sainsbury’s (who should know better) even encourages customers to use it’s credit card (a joint venture between state owned Bank of Scotland / HBOS – now Lloyds Banking Group and its own Sainsbury’s Bank subsidiary) by baiting customers with an offer of double Nectar card points if you use the card in-store for your groceries, online or buy petrol from one of the retailer’s petrol stations.
This sort of marketing is grossly irresponsible and is tricking ordinary consumers into racking up debts on expensive credit cards by encouraging people to not only use their cards for one-off purchases, but to get into the habit of using them for day-to-day spending. Nectar points are virtually worthless and when compared to the interest charges and cash advance fees incurred from the card there is unlikely to be any net gain, except for the few cardholders who meticulously pay off the card each month, but these users are a minority and the card issuers know it.
Before you get tempted into racking up debts on Sainsbury’s credit card, stop and think how many Nectar card points do you really need for that irresistable offer and then consider how much interest you’ll be paying in the process. (Based on a Typical 19.9% APR for a Nectar Credit Card).
For example, Credit Cards UK has calculated that in order to obtain a £5.00 discount voucher from Nectar which can be redeemed at Sainsbury’s and other retailers you’d need to collect 1200 points. Yes, 1200 points!
With 2 points issued for every pound spent, you’ll need to spend £600 in-store to get that £5.00 voucher. Now, if you take up that irresistable Nectar credit card offer and get double points, you “only” need to spend £300 to get a £5.00 voucher. That’s like Sainsbury’s giving you a whopping 1.6% discount when you spend £300 at the till (much easier but a whole lot less fun than collecting points?!). Now, if you leave that £300 sitting on their credit card for 1 month at 19.9% APR, you’ll pay £4.98 in interest on that £300 alone. The interest will escalate if you continue to roll-over the balance from month-to-month and keep spending on the card.
Those Nectar points could prove expensive…
While MoneySupermarket’s findings could point to a continuing deterioration in household finances, the real reason is probably more to do with the clever marketing and worthless offers being used to suck people into using credit cards for day to day expenditure with promises of free cinema tickets, vouchers, holidays, flights and more which cardholders end up paying for multiple times over as they attempt to collect the points required for a reward.