Millions of households across the UK are set for their biggest ever financial hangover in the new year as the squeeze on money markets begins to hit home.
An estimated £11.7 billion was spent on credit cards this Christmas with industry experts predicting that credit card borrowing will incur higher interest charges in 2008 as banks seek to protect profits.
British consumers have amassed a total credit debt of £65 billion, according to a report by PricewaterhouseCoopers. Consumer indebtedness had nearly doubled since the turn of the century, with the average adult now owing £33,000 through mortgages, credit cards and loans, compared with £17,000 in 2000.
Rising credit card rates will add pressure to already over stretched households struggling to cope with increased mortgage payments and higher utility bills.
Richard Thompson, partner at PricewaterhouseCoopers, said: "There are tough times ahead for both consumers and credit card companies.
Findings from a survey undertaken by the Financial Services Authority (FSA) reveal around a quarter of 16 to 44-year-olds are worried about bills arriving on their doormats in the New Year. Its poll of 2,454 adults also found that 48% of people are more likely to go on a diet or book a holiday than try to sort out their finances in January (13%).
Almost 60% of people surveyed admitted they either did not know what Christmas was going to cost them or spent more than they had budgeted, and 23% used loans or credit cards to finance the festivities.
Chris Pond, director of financial capability at the FSA, warned of the potentially "devastating" consequences of poor money management.
"Sorting out your budget isn't the most interesting thing you will do after Christmas, but it could be the most important," he said.
"If you don't make payments on time it can affect your credit history and at worst put your home and even relationships under pressure."
Personal finance expert Martin Lewis, said: “Will credit card rates rise next year? Yes. People who then try to switch to another card company to avoid paying more face the possibility of being turned down.”
In addition to increasing interest rates, a growing number of banks are turning down credit-card applications in an effort to reduce their exposure to debt. Last year around 33% of applications were rejected. Now, banks reject between 40 and 50% of applications. This will cause problems for the many borrowers who move their debt from one cheap short term credit card deal to another.
There are fears that the credit crunch will have a devastating effect on some families which are already deep in debt. Nearly 5 million people have still not paid off their store and credit card bills from a year ago, according to moneyexpert.com
Debt charities expect a massive influx of calls from worried consumers who are counting the cost of overspending at Christmas.