The average credit card debt in the UK is thought to be around £2,100, but London-based fintech Incredible's recent research has found the figure to be much higher: around £6,000, spread across multiple cards.
It also found that around 42% of people are using other forms of borrowing including credit cards to pay off their buy now, pay later (BNPL) bills, as the cost of living crisis begins to bite. We sat down with Yaseen Rostom, CEO and cofounder of Incredible — which is using open banking to build a new debt management platform — to find out how the problem can be tackled.
What are the main problems in the debt management market?
Most people don't know the cost of their debt, or the time it's going to take for them to clear their debt, so they don't know the best way to make the payments. Now, with the addition of BNPL, there's all these different products and apps just pushing you to focus on creating a budget and telling you how much you spend on things. But we did hundreds of surveys and what we started understanding is that people at all income levels are treating their debt repayment bills as a utility bill. They're not factoring in compound interest, which, when you're saving and investing works really, really well — but against you, it's a nightmare.
How can people reduce their personal debt right now?
The first thing I'd say is that we're seeing lots of people use their credit cards to pay for BNPL purchases right now. My top advice would be don't use one debt to pay off another debt. Then, everyone should absolutely know how much they're paying in interest, because that could be eating into any payment you're making, month to month. So many people we speak to have no idea what interest they're paying on credit, even though this is a top priority for other products like mortgages. We see there's a tonne of wastage and we really want to fix that problem — it's something you're signed up to for life.
Do you think BNPL is properly understood as debt?
I think people see it as a checkout option, as a way to buy something and split it over three payments. If you look at the premise of BNPL, it's great when you know how to manage it. But the flip side of that is a bunch of consumers are now seeing designer or luxury goods and saying, I can't front the £500 right now, but I can equally split this. But the most worrying thing for me is the availability of BNPL everywhere — people can now pay for food with it, then they're using credit to pay that off. That's where we start getting into an immediate cycle of debt.
