Almost 900,000 consumers are expected to fall into financial difficulties as a result of overspending on credit cards next year.
According to a study by consultants PwC estimates credit card issuers will have to write off debts totalling £2.1bn in 2004 as customer defaults have been growing at the "same brisk pace" as lending.
However, the report stresses the credit card industry is able to cope with the current level of defaults.
"Unemployment and individual bankruptcies have been relatively low, which has dampened the level of bad debts experienced by these issuers," it said
The report comes after the Bank of England and the Financial Services Authority have warned on rising consumer debt.
The PwC report also says card issuers may have to pay an extra £450m a year if the Office of Fair Trading decides inter-bank processing charges are too high. The OFT is looking at whether interchange fees charged by Mastercard are in breach of the Competition Act. The fees, which cover transaction costs between retailers and cardholders' banks each time a purchase is made, are about 1.1 per cent of any transaction.
