OUTSTANDING balances on credit card accounts are growing at the same time as the average credit card APR is at a 20-year high, with one financial expert saying “rising balances plus record APRs is a toxic mix.”
Meanwhile, brokers have warned borrowers that high credit utilisation can be the difference between “an approval and a failure” when applying for a mortgage.
Outstanding balances on credit card accounts grew by 8.5% over the twelve months to November and 47.8% of outstanding balances incurred interest compared to 48.7% in November 2024, according to UK Finance data published this morning.
Additionally, the total spend of £21.4 billion was 2.6% higher than November 2024, meaning people are relying on plastic more.
Meanwhile, Moneyfacts data reveals the average credit card purchase APR has hit a 20-year record-high, at 35.8% APR, further pinning the pressure on those with big outstanding balances.
Significant shift
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said: “The past 20 years has seen a significant shift in the use of credit cards, they are much more convenient and arguably safer, but one area that has got worse is the cost to borrow.
“The Moneyfacts average credit card purchase APR sits at 35.8% APR for February 2026 (highest rate since records began in June 2006), so borrowers incurring interest need to make fixed repayments to clear debts faster.
“The latest statistics from UK Finance reveal around half of credit card holders are now incurring interest charges, and while some might only owe a few hundred pounds, there will be others with significantly more debt that needs to be paid back.
“Luckily, there are some lengthy interest-free balance transfer cards to choose from, with TSB leading the market with a 38-month term, which charges a transfer fee of 3.49%.
“Making fixed credit card payments is the fastest way to clear debts, those using a credit card charging 35.8% APR with a debt of £500 would take an entire year to pay it off based on a fixed repayment of £50, and it would cost £85 in interest.
“Increasing this payment to £100 per month would clear the debt in six months, and halve the interest charged (£42).”
Toxic mix
Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, described growing outstanding balances and higher rates as a “toxic mix” that could “derail” mortgage applications.
She said: “Credit card debt is creeping up at exactly the wrong time. Balances rising 8.5% year on year tells us that households are leaning on credit to plug gaps.
“Yes, the share of balances incurring interest has dipped slightly to 47.8%, but that still means nearly half of all card debt is being charged at an average 35.8% APR. That is eye-watering and very hard to outrun.
“For mortgage hopefuls, this matters. Lenders look at outstanding balances, minimum payments and overall utilisation. High card debt can shrink how much you can borrow or derail an application entirely.
“Even if you pay on time, heavy usage signals financial strain. Rising balances plus record APRs is a toxic mix.”
Get mortgage-ready
Ranald Mitchell, Director at Norwich-based Charwin Mortgages, described credit card rates as a tax and warned aspiring homeowners to be wary of making minimum payments.
He said: “35.8% APR is a tax on being short of cash. That’s not convenient borrowing, it’s a business model built on people having no slack.
“Credit card firms will say it’s pricing for risk, but when household budgets are already stretched, that risk pricing becomes a squeeze as minimum payments keep people treading water while interest quietly does the damage month after month.
“And this doesn’t stay in the credit card world, it also shows up at the mortgage desk. High utilisation and revolving balances don’t just cost more, it cuts mortgage borrowing power and can be the difference between an approval and a failure, even for borrowers who have never missed a payment.
“If you’re planning a mortgage, don’t let minimum payments ruin your life. Fix your repayments, drive balances down, and get mortgage-ready.”
Permanent tax
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said: “Debt is becoming a permanent tax on the squeezed middle. UK households are facing a ‘perfect storm’ as credit card APRs hit a 20-year high of 35.8% and balances grow 8.5%.
“This will provide a direct threat to mortgage affordability as lenders closely scrutinise debt-to-income ratios, and record interest payments eat into the ‘disposable’ income used to calculate loan limits. High credit utilisation also damages credit scores, potentially locking buyers out of the best rates.”
But there may be some good news ahead.
Following this morning’s rise in unemployment and cooling private sector wage growth, Zaman Sheikh, Director of Northwood Chelmsford and WN properties estate and lettings agents in Shenfield and Chelmsford, believes a rate cut by the Bank of England is now as good as baked in, alleviating the pressure on households.
He said: “This morning’s bleak job market data has massively boosted the chances of a rate cut next month. Markets are now pricing in a roughly 75% chance of a base rate cut and that will increase further if inflation drops towards target on Wednesday as expected.”
