3rd April 2014
While last month’s Budget indicated that things were improving for many, the situation is likely to worsen for the nine million households who believe their debts are going drastically to increase according to research by Moneysupermarket.com.
The comparison site found that people are relying on credit to fund everyday spending for transport (8 per cent), insurance (6 per cent) and energy (5 per cent).
Falling deeper into the red
The research suggests that of 32 million Britons with existing unsecured borrowing such as credit cards, overdrafts or loans, nine million will move even further into the red to cope this year.
Some 17 per cent say that they will try not to use any more unsecured credit, however they may have no other choice if they face unexpected expenses. Six per cent of those in debt expect to have to spend more simply to cover their essential monthly outgoings whilst an additional eight per cent already find it difficult to live within their means so will need to use credit to fund the shortfall.
Debt added daily
The report shows that two-fifths of people in debt are forced to rely on credit in order to pay their way day-to-day through credit cards, personal loans, overdrafts, store cards or finance agreements. Eight per cent will pay for their transport costs on plastic, six per cent to cover their utility bills and a further six per cent will fall back on credit to pay for their insurance.
Where possible however, some people are taking necessary action to attempt to pay off their debts, with 30 per cent paying what they can each month to try and clear the deficit as quickly as possible. Meanwhile, a fifth are making a monthly budget and, more importantly, are sticking to it and a further 19 per cent have set up a standing order to pay owed money automatically. Consumers who were making luxury purchases are giving them up at 13 per cent and nine per cent of people have stopped going out, in order to get their finances back in shape.
Kevin Mountford, head of banking at MoneySuperMarket says: “Those relying on credit of some kind to pay their way need to start doing all they can to break that habit and get themselves into the black. It is encouraging to see that some people have recognised this and are seriously committed to clearing their debt, and using cost saving measures to do this. Debt needs to be tackled head on; simply working out a realistic monthly budget and cutting out unnecessary expenditure should be the first step.
“Interest rates may be low at the moment, but eventually they will climb, therefore it is best to pay off as much as you can now before this happens. Make sure you have the most suitable financial product to help you get back in the black – options include consolidating several balances onto a credit card that charges zero per cent on balance transfers, opting for a low rate credit card if you won’t be able to pay off the balance in time on a zero per cent card, or paying off debt with one low-rate loan. It is also vitally important to understand your credit profile before applying as this will dictate whether you will be able to consolidate. If you have a poor credit record, then it may be worthwhile speaking to one of the free debt charities such as Step Change or Citizen’s Advice for help.”