The number of people who admit to being ‘terrified’ by their financial situation has jumped 50% in just 12 months as the cost of living crisis worsens.
Nearly one in three consumers now report this level of fear about their ability to make ends meet, according to a new study.
Inevitably, low-income households and young people are particularly worried, with nearly half of under-34s now describing the level of their financial fears in similarly stark terms – up from 29% at the same time last year.
A third say they will need to borrow money to survive in the coming months, despite the fact that the price of products and services is not expected to peak for several months, according to data compiled by lender CreditSpring.
It predicts credit card debt will hit nearly £69billion over the next six months – an 18% rise in total debt – as households struggle to keep up, despite concerted efforts to reduce .
Separate data released by the Office for National Statistics (ONS) in recent days shows that rising daily costs are now affecting 91% of the UK population, up from 62% six months ago.
In response, non-essential spending is reduced, millions of people have stopped making non-essential car journeys and a third are spending less on essentials. Two in five people now buy less food and more than half have reduced their gas and energy consumption at home.
But despite often severe attempts to reduce costs, shortcomings are now appearing at the national level.
Domestic energy debt has doubled to £1bn in a year, for example, USwitch warned last week, with a quarter of consumers now owing money to their supplier. Six million households owe their energy suppliers an average of £188, leaving them without a buffer to combat rising prices which are set to rise by another £600 in October.
“The cost of living crisis, recovery from the financial impact of the pandemic, or the explosion of unregulated Buy Now Pay Later products would have sent shockwaves through society,” says Theodora Hadjimichael, the network’s chief executive. finance, Responsible Finance.
“All three together are causing a seismic shift in the consumer credit market.”
According to the most recent figures from the Bank of England, UK individuals are currently borrowing £1.5bn each month on credit cards, and the total is expected to rise by another £9bn by fall – a calculation made even before the Russian invasion of Ukraine began to have economic repercussions here in the UK.
While one in six adults should be asking for a bigger loan, especially by credit card, they are doing so when they already have an average of 13% more debt than they did at the same time l last year.
“Credit cards will provide a lifeline to borrowers over the next few months. However, with millions of people relying on borrowing to survive, credit cards with high repayment terms and a high risk of spiraling debt are a high-risk option that could lead to increased debt for many households,” Neil Kadagathur, co-founder and CEO of Creditspring, warns.
“It is clear from the customer information in the [Bank of England’s latest] tracking financial stability that it has never been more urgent to scale up responsible lending,” says Hadjimichael.
“More than seven million people are financially excluded and their financial resilience is at risk. Responsible lenders are offering them a better and fairer alternative when they need to borrow, so this will be absolutely essential in the coming months of uncertainty.
As the demand for support grows, financial service providers need to ensure that borrowers have access to affordable credit options that do not put their financial stability at risk,” she notes.
And although there are 0% interest free credit cards, if a borrower does not pay off the balance in full, they will incur high costs and additional interest.
“Unfortunately, those who will rely the most on these products over the next few months are also those experiencing the most financial uncertainty,” Kadagathur says, pointing out that this means they are the least likely to benefit from the interest-free period. . .
“With millions of people across the UK having no choice but to borrow if they are to survive these incredibly difficult few months, it is essential to ensure that all households have access to a affordable credit,” he adds.
“Currently, there are up to 15 million people in the UK struggling to access traditional credit options – these are the people most at risk from unscrupulous lending practices and indebtedness.
“Lenders need to offer more support to borrowers and step up to offer the support that will be a lifeline over the next two months.”