Credit card borrowing sees largest monthly increase in over a year

While credit card borrowing increased in the first month of 2025, individuals continued to build up their savings.

Net borrowing on credit cards rose to £1.1 billion in January, according to the latest Money and Credit release from the Bank of England.

This is an increase of £0.7 billion from December, the highest monthly increase since November 2023.

While it’s perhaps not surprising to see total borrowing on credit cards grow in January after the financial pressures of the festive season, 2025’s January figure was £0.2 billion higher than the previous year.

“The start of any year is a busy time for consumers who are perhaps dealing with a festive hangover. It’s convenient for borrowers to use a credit card or overdraft to cover a rise in costs, but it is essential for them to pay this back as soon as they can to avoid incurring interest,” explained Rachel Springall, Finance Expert at Moneyfactscompare.co.uk.

Interest-free borrowing

While credit cards are a popular way to help people cope with periods of higher spending, it may be possible to avoid building up debt with some forward planning.

“Shoppers could start their festive spending earlier or indeed set up a regular savings account for six months to use the cash to cover costs,” Springall noted.

Alternatively, if shoppers opt for a credit card, they could consider using a 0% purchase card that won’t charge any interest for a certain number of months.

These cards allow you to spread the cost of expensive purchases or higher levels of spending at no extra cost, provided you stay within the credit limit, make the minimum payments and clear your balance in full before the end of the interest-free period.

Currently, the longest 0% period on offer is 23 months from Barclaycard and MBNA Limited. However, the length of the 0% period you qualify for will be subject to checks.

Cutting credit card interest

Anyone who has built up debt on their credit card may also be able to cut the amount of interest they pay by moving it to a balance transfer credit card.

As with a 0% purchase card, these 0% balance transfer cards won’t charge interest for a number of months, as long as you make the minimum payments on time and pay off the card in full before the end of the 0% period.

While there is often a balance transfer fee to pay, you can still save a significant sum on interest charges compared to keeping the debt on a standard credit card.

Several providers have increased their 0% balance transfer term in recent weeks, with three providers now offering an interest-free period of up to 32 months. This includes HSBC’s Balance Transfer Credit Card Visa, in addition to cards from MBNA Limited and Tesco Bank.

As a result, those who are eligible for this longest 0% term of 32 months now have more than two and a half years to clear their credit card debt without worrying about incurring any extra interest charges. However, it’s crucial that borrowers continue to meet the terms of the card and have a plan to pay off their balance by the end of 0% period to avoid any expensive charges.

Encouragingly, many people seem to be making the most of interest-free offers, with just under half of all credit card balances incurring interest, according to the Household Finance Review for Q4 2024 from UK Finance.

By contrast, interest was charged on over two thirds of balances in 2011, so it's positive to see this figure gradually decrease over the years.

Savings deposits continue to rise

Despite the rise in borrowing and many people finding money tight after the Christmas period, individuals still managed to boost their savings.

Households added an extra £8.4 billion to savings in January, compared to £4.7 billion in December.

Easy access savings accounts and ISAs proved particularly popular among savers, with £5.4 billion and £2.2 billion deposited into these accounts respectively.

“It’s encouraging to see consumers put away more cash as a safety net, but it’s imperative they ensure it’s invested in the right type of account to suit their needs,” commented Springall.

“Frozen income tax thresholds mean many savers could find their earnings are now subject to tax, by breaching their Personal Savings Allowance (PSA), so it’s unsurprising to see an appetite for ISAs,” she added.