New research from the charity Step Change has shown a worrying trend emerging in the UK as more and more low to middle income families now use high-interest borrowing simply to manage day to day living. Millions of people are turning to credit cards and payday loans to make payments of rent, fuel and even mortgage payments, a path to disaster as the problem can only get worse, month on month. Using the figures from their sample group, Step Change have estimated that as many as 12 million people have so little saved that they would be in a situation of ‘problem debt’ within a month of losing a job.
Measures are needed to protect the ‘squeezed middle’
The report shows that those at most risk of financial meltdown are those working families who are only just managing to stay afloat by using debt to get them through the month. In the UK there are around 8 million households with incomes of up to £35k annually who are struggling to manage increasing – and largely insupportable – levels of debt. Step Change is calling for action to prevent the lower income households being additionally penalised by unfair utilities charges which come with the use of pay as you go meters and keys as well as the introduction of more affordable and more easily accessed credit. Many people are drawn into payday loans and similar lending because they are too ashamed to fail a credit check at their bank, thus making their financial situation much worse.
Is your borrowing costing more than your food bill?
If so, you are far from being alone. Many people are increasing their level of personal debt at a rate of £52 a week, simply to keep going. That this is insupportable is clear and no-one can keep going for long at that rate. The problem comes when financial circumstances take a hit – illness, injury or redundancy – and the tenuous hold on solvency is lost. An estimated 6 million people use credit to get through till payday. Of these, half use that credit to pay off other credit commitments. Some commentators have seen the reduced level of personal debt now apparent as the recession starts to resolve as a good sign that people will be more able to manage their levels of borrowing but this is not as good a sign as all that. Having used savings first before borrowing, most people now have no safety net and having survived the recession by the very skins of their teeth, now have nowhere to go except to the high interest lenders who advertise everywhere. Once someone has resorted to a payday lender, they are more likely to do so again and so the morass becomes more difficult to escape. To quote Mike O’Connor, chief executive of Step Change, ‘The role that credit plays in our lives has undergone a sea-change. Millions of people have too few savings to deal with inevitable financial shocks. High cost credit has become a personal safety net for which all too often strangles the people who use it.’