London, 19 March 2024 - High inflation, interest rates, and a confirmed recession are fuelling a household debt rise, with signs of Brits increasing their reliance on credit products, deferring payments, and spreading out debts for longer to face down the rising cost of living.
Equifax data reveals a sustained increase in UK credit card debt, with levels rising by 9.6% over the past 12 months. While the total number of credit cards in use has also grown by 3.2% during the same period, the more concerning trend lies in utilisation. The number of cards with at least 90% utilisation has risen by 10%, with a similar increase observed in cards exceeding their credit limits1.
Credit Card debt is by far the most common cause of debt among Brits, hitting 43% of consumers. This is followed by overdrafts (22%), mortgages (20%), student debt (19%), and Buy Now Pay Later (BNPL) loans (18%).2
BNPL in particular has become increasingly popular through the cost-of-living crisis, as Brits look to spread out the cost of their purchases. Equifax research shows almost half of UK adults (48%) have now used BNPL, with an additional 7.4 million people using the payment method for the first time last year.3
When it comes to mortgages, homeowners feeling the strain of higher interest rates are opting for extended loan terms, in order to spread the cost of borrowing Equifax data4 reveals that over 10% of mortgage originations in November were at loan terms of more than 35 years, a significant increase on the 3.5% observed two years prior as households opt to counter higher mortgage repayment rates by staying in debt for longer.
Beth Whelan, Chief Strategy and Transformation Officer at TDX Group, an Equifax group company based in the UK said “Given the signs of finances being spread too thin, more and more people are relying on credit to keep up with the current cost of living and are shouldering their debts for longer. Access to credit has many positive benefits, but both lenders and borrowers should approach debt responsibly, and appropriately assess affordability and ensure the right controls are in place to protect vulnerable consumers.
“The government’s decision last week to abolish the charge for Debt Relief Orders will be a welcome helping hand for families facing up to debts, but it remains the case that consumers should always seek to address problems as early as possible. Charities and organisations like StepChange and Citizens Advice Bureau can help build a roadmap out of debt so people can regain control of their finances, while new digital engagement solutions are offering consumers added flexibility with round the clock debt assistance.
“Meanwhile, lenders and creditors must continue to prioritise building a robust picture of customer affordability, balancing financial inclusion with the need to protect financially vulnerable customers before debt risks become unsustainable”
TDX Group shares the steps to take if you find yourself in debt
1. Seek advice
There are lots of free independent services that will give you information on how to deal with debts. For practical advice on what to do about debts you can speak to the Money Advice Service, which is a free and impartial service set up by the government. Getting expert advice can offer you practical steps on how to get out of debt, and can also help you to share the mental burden, if it feels overwhelming or unsolvable.
2. Consider solutions
Debt consolidation is a popular solution to help lower your monthly repayments or at least make them easier to manage. By working with a third party or charity, you could get a Debt Management Plan, which is an agreement with your creditors on how your debts will be repaid.
Insolvency solutions are a legal process available to people in debt. Solutions like an Individual Voluntary Arrangement (IVA) or a Debt Relief Order (DRO) are aimed at people who are unable to meet repayments on their debts and need legal protection from their creditors. Bankruptcy is a last resort and is only an option for people who have no other way of paying back their debts.
3. Repair your credit history
If you have had trouble paying back debts, it might mean you have late or missed repayments on your credit report. It can take time to improve the health of your credit report. For example, insolvency solutions will stay on your credit report for up to six years. On the other hand, just because you’ve had problems with debt in the past doesn’t mean there isn’t hope for the future. The important thing is to change how you use credit, being considerate in how you and when you borrow so your repayments remain manageable.
4. Budget for the future
Keeping track of your spending and your debts can help make everything easier to manage. Creating a budget can help you anticipate when you might run a little bit short, and when you might be able to put a little bit of money aside. This can also help to change how you use credit, i.e. not just relying on it in emergencies.