2nd November 2015
The past six months has witnessed a steep increase in the number of people borrowing money to pay for essentials including food, housing and utility bills, claims new research.
According to The Financial Well-being Survey produced by Debt Advisory Centre, more than half, at 57%, of the 2,000 people questioned said they were forced to rely on credit to cover their grocery bill, rent or mortgage, or their water, gas or electricity bills.
Some 30% of those questioned classified themselves as ‘struggling’, and around 20% said their financial wellbeing is ‘worse’ now compared with 12 months ago. Just a quarter of consumers said they are now more comfortable than they were a year ago.
Worryingly the study showed that more people are struggling to afford their grocery bills despite fierce competition among supermarkets leading to a decline in food prices over the past year.
Almost a quarter of consumers said they borrowed to buy food between April and September – double the number who borrowed to buy food in the six months to March.
Similarly, 10% of respondents said they paid for fuel or their car insurance using credit, despite competition at the fuel pumps pushing down prices by 15%.
The high cost of gas, electricity and water has left 13% of consumers, equivalent to 8.3m people, with utility bill arrears of between one and three months. Even more concerning is that the same number of people said they have rent or mortgage arrears.
Looking at consumers’ ability to cover bills for unsecured credit, 15% said they are struggling to pay their credit card and have up to three months of arrears. A further 22% have fallen behind with payments on a store card or loan.
When consumers were asked what approach they would take if they were struggling with debt, 11% said they would seek to borrow additional money so they could meet their repayments.
Some 12% said they would either delay paying essential bills such as rent and utilities so they could make repayments or they would simply avoid the companies they owed money to until they were able to make payments.
A further 30% of consumers admitted they would seek independent advice to help them to manage their debts and almost half said they would speak to lenders so they could agree an affordable payment plan.
Melanie Taylor, a spokeswoman for Debt Advisory Centre, says: “The Financial Well-being Survey shows an alarming jump in the number of people who are struggling to pay for the basics from their regular incomes and so are being forced into a cycle of borrowing.
“While unemployment is falling and some companies have increased salaries ahead of the introduction of the Living Wage, there are still too many people with low or fluctuating incomes who live in fear of the next bill coming through the letter box.
“The last thing we want consumers to do is to pay for their essential bills, such as their mortgage or a gas bill, using credit. The first step out of this cycle is to do a workable budget, which prioritises household bills, and then to be ruthless in sticking to it.
“If anyone finds that their income isn’t stretching to meet their bills, then I would urge them not to borrow money, but instead to seek advice from the Money Advice Service or elsewhere. For people with problem debt, don’t ignore it. It’s important to get support before the debt starts to spiral.”