Consumers across the country are racking up large amounts of debt in interest payments owed on cash withdrawn using credit cards, it has been claimed.

According to uSwitch, more than a million struggling Britons are using credit card cash to pay off other financial commitments such as mortgages, energy bills and personal loans. While the interest owed on doing so has reached 161 million pounds, the price comparison site warned that it is only likely to get worse as the country faces its first credit crunch Christmas.

Research from the group indicated that as many as 1.7 million people are planning to withdraw on their credit cards to cover the heightened expense of the festive period. Furthermore, while the number of people resorting to this type of borrowing is likely to increase, so too is the amount that they can expect to be required to pay back for doing so. The group pointed out that while the average annual percentage rate (APR) on credit card cash withdrawals was 21.22 per cent a year ago, that proportion has now risen to 29.97 per cent.

And it seems the banks are keen to discourage this type of activity, with Nationwide upping cash APR rates from 16.9 per cent to 31.23 per cent in under three years, while Lloyds TSB has added nearly a thousand basis points to its cash withdrawal rates.

For those who are struggling to make their income last the month and are resorting to credit borrowing as a result, taking out a debt consolidation loan may prove an attractive way to spread cash further by lengthening the period of repayment on items such as credit cards, utility bills or other personal loans.

It seems that while many people are turning to cards for short term cash needs, the majority are unaware of the price they will pay for doing so. Research carried out by uSwitch showed that 69 per cent of people were unaware of APR rates, while 12 per cent believed that taking out cash using a credit card was the same as doing so with a debit card.

Commenting on the statistics, Louise Bond, personal finance manager at uSwitch, warned: "People who use a credit card to withdraw cash may already be struggling under the burden of debt and are forced to resort to this method of borrowing to make ends meet. They can ill afford to pay the exorbitant rates of interest that most lenders are now charging them. While we accept that credit card providers have to make money and that cash withdrawals carry a higher risk of people getting into bad debt, it is indefensible for companies to penalise their most vulnerable customers."

For those consumers who are struggling with growing repayment commitments, taking out a debt consolidation loan may prove an effective way to reorganise finances and reduce outgoings. Applying for this type of loan may be of particular interest to the large number of people identified in a recent study by Norwich Union who were said to be budgeting blindly through the economic turmoil.

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