Plastic to swipe out cash and cheques

WITHIN two years, more will be spent on plastic than is handed over in cash and cheques combined, it was predicted on Thursday. With spending already running at £540,000 a minute, the statistics have provoked renewed fears of a dangerous debt mountain, particularly among the young.

Experts believe a swipe of the card through a till is seen as less painful than handing over hard-earned cash - making people less inhibited in their spending. Debt no longer holds the stigma it did for previous generations, with the result being huge balances on credit cards.

A report by retail analyst Mintel reveals that a staggering £285bn was spent on credit or debit cards last year - almost four times as much as a decade ago.

Plastic cards accounted for just 15% of UK consumer spending in 1992. By last year it had reached 44% and it is predicted to break through the 50% barrier by 2004. The number of credit cards in circulation has doubled from 26m to 52m within a decade, while spending on these cards has gone up from £29bn to £86bn.

The number of debit cards - where payment is taken directly from a bank account - has increased from 23m to 54m and spending on them has soared from £29bn to £199bn. Over the same period, the number of cheques processed each year has fallen by about 1.3bn to currently stand at 2.6bn.

Mintel financial consultant Toby Clark said: 'The very strong trend towards debit and credit cards suggests plastic will overtake the combination of cheques and cash within two years. Debit cards are now a fact of modern living. They are accepted just as readily as cash in supermarkets and even in pubs and bars. They are clearly far more convenient than the cheque, which has seen a huge decline, and even cash.' Clark added: 'People see spending on plastic as far less painful than using cash or a cheque. There is also the advantage of cash-back at tills, which seems almost like free money.'

The survey of more than 2,000 found that 56% of them held a debit card, while 49% owned a credit card. Credit card debt now stands at an all-time record of £43.27bn, a figure which is generating huge profits for the banking industry. Around 15% of card holders owe £1,500 or more, while one in 12 owe at least £2,500 and 4% have a debt of more than £5,000.

Young adults between the ages of 16 and 24 are least likely to pay off their whole balance each month. Mintel said someone owing £5,000 would pay £150 a month in interest charges alone, given a rate of 14.9%.

It would take a card holder with a £5,000 balance who consistently made only the minimum repayment almost ten years before the balance was reduced to less than £1,000 - by which time interest payments would have been in the region of £4,700.

Clark said: 'This indicates both the dangers of letting credit card spending spiral out of control and the extremely profitable nature of those customers who just rotate a sizeable balance - either paying the minimum or repaying a sizeable amount but letting debt build up again.'

Cardholders fall into three distinct groups, said Mintel - the cautious, the carefree and the occasional user. The cautious are in the majority. They claim to use their cards sensibly, know when they must make their monthly payments and clear their balance every month - thus paying no interest. Carefree cardholders admit they find it difficult to pay the interest on their balance and feel they have to exert self-control in order to avoid overspending on their cards. The occasional users have a credit card but rarely spend on it.