We use essential cookies to make our website work properly when you visit us. We’d also like your consent to set other non-essential cookies to help us improve our website and tailor the marketing you see.
As those in later life continue to battle the cost-of-living crisis, a rise in credit card interest rates to their highest levels for 24 years is set to add further stress to already stretched budgets among the over-55s.
According to more2life’s 2022 Borrowing Report, which was released last month, unsecured debt in later life is set to increase by more than a third this year; reaching £20 billion.
This comes as inflation reached a 40-year high of 9.4% in July, with the Bank of England currently predicting that rates could rise to as high as 11% in October following the next energy price hike.
In reaction, consumers have been forced to look for ways to reduce their outgoings, including cutting back on non-essential items such as clothes - with sales down 7.2% in July compared to June.
However, despite their best efforts, many over-55s still find themselves relying on unsecured debt, such as credit cards and loans, to get by.
It will then come as a further blow for those who depend on borrowing to learn that credit card interest rates hit a 24-year high last month.
Data from comparison site, Freedom Finance, shows average interest rates on credit cards stood at 21.66% in July; an increase of 0.23 percentage points since June and the highest since December 1998.
As more over-55s look towards unsecured borrowing as a way to support their finances, and with some costs within that reaching record highs for this millennium, it’s likely more consumers will enter the equity release market with a greater desire and need to settle existing debts.
According to data from Key, 18% of equity release customers already use some or all of their funds to repay credit card debt, with the average amount owed at £9,322.
For the vast majority, you wouldn’t recommend equity release to simply repay an existing credit card. However, as part of a wider later life financial strategy, it could prove to be significantly more cost-effective.
As a result of the 24-year interest rate high, the average credit card rate now sits at 21.66%. That means the total cost of borrowing for repaying a credit card debt of £9,322 at a rate of £250 a month would be £5,252 over 58 months.
Meanwhile, as part of a larger loan amount to meet the client’s other needs, and with a rate of 4.35%, the same repayment plan on a capital and interest lifetime mortgage would only cost the borrower £711.45 - and take 17 months fewer to clear the initial £9,322.
“The ongoing cost-of-living crisis will force more and more consumers to look at alternative means of financing their daily lives, especially those who are older and perhaps on fixed pension incomes,” Key Group’s B2B Marketing Director, Stuart Wilson, says.
“For any adviser working with later life clients, it’s essential to make your customers aware of the benefits and potential pitfalls of different types of borrowing they may be considering.
“If you’re not qualified yourself, work with a specialist later life adviser so that you can introduce your client to a trusted expert to ensure the best financial outcome.”
