The Monetary Policy Committee (MPC) of the Bank of England is anticipated to raise interest rates tomorrow in an effort to bring inflation back on track toward its two percent target. Although the impact on mortgage holders has received a lot of attention, research from the Joseph Rowntree Foundation (JRF) indicates that low-income families’ cost of living crisis has moved into a risky new stage for all individuals, mortgage or not. Low-income families borrow money to help them, including to cover the growing cost of living, and are paying hundreds of dollars in interest on those loans. Even without a mortgage, these households are incredibly exposed to rising interest rates. We have analysed the debt time bomb facing millions of low-income families:
Are you wondering if everyone in the UK has debt? The answer is a resounding no. While debt is a common feature of many people’s lives in the UK, it’s not a universal experience In fact, a significant portion of the population lives debt-free.
This article delves into the complex world of personal debt in the UK exploring who has debt how much they owe, and the different types of debt they carry. We’ll also examine the factors that contribute to debt accumulation and the potential consequences of being in debt.
So, let’s dive in and explore the fascinating landscape of personal debt in the UK.
Who Has Debt in the UK?
According to the Office for National Statistics (ONS), around 62% of UK adults had some form of debt in 2022. This means that a substantial majority of the population carries some financial obligations, but it also highlights that a significant portion (38%) lives debt-free.
The demographics of those with debt vary depending on the type of debt. For example, younger adults are more likely to have student loan debt, while older adults are more likely to have mortgage debt. Additionally, homeowners are more likely to have secured debt, such as mortgages, while renters are more likely to have unsecured debt, such as credit card debt.
How Much Debt Do People in the UK Have?
The average total debt per household in the UK, including mortgages, was £65,479 in 2022. This equates to an average of £34,570 per adult, which is roughly 99.1% of average earnings.
However, it’s important to note that this is just an average. The amount of debt people have varies widely depending on their individual circumstances. Some people have very little or no debt, while others have substantial amounts of debt.
What Types of Debt Do People in the UK Have?
The most common types of debt in the UK are:
- Mortgages: This is the biggest source of debt for many UK households. In 2022, the average mortgage debt was £133,000.
- Unsecured loans: These include personal loans, credit card debt, and payday loans. The average unsecured loan debt in 2022 was £15,400.
- Student loans: The average student loan debt in 2022 was £45,000.
- Car finance: The average car finance debt in 2022 was £12,000.
What Factors Contribute to Debt Accumulation?
There are many factors that can contribute to debt accumulation, including:
- Low income: People with low incomes are more likely to struggle to make ends meet and may rely on credit to cover their expenses.
- High living costs: The cost of living in the UK has been rising in recent years, which can make it difficult for people to manage their finances.
- Unexpected expenses: Unexpected expenses, such as car repairs or medical bills, can quickly lead to debt.
- Poor financial management: People who don’t manage their finances well are more likely to overspend and get into debt.
- Access to credit: The easy availability of credit can make it tempting for people to borrow more than they can afford.
What Are the Potential Consequences of Being in Debt?
Being in debt can have a number of negative consequences, including:
- Stress and anxiety: Debt can be a major source of stress and anxiety, which can impact both mental and physical health.
- Damage to your credit score: A poor credit score can make it difficult to get credit in the future, such as a mortgage or a loan.
- Legal action: If you’re unable to repay your debts, creditors may take legal action against you, which could result in wage garnishment or even bankruptcy.
How to Manage Debt
There are several strategies you can take to manage your debt if you’re having trouble paying it off:
- Create a budget: The first step to managing debt is to create a budget and track your income and expenses. This will help you identify areas where you can cut back on spending.
- Consolidate your debts: If you have multiple debts, you may be able to consolidate them into one loan with a lower interest rate. This can make it easier to manage your repayments.
- Seek professional help: If you’re struggling to manage your debt on your own, you can seek professional help from a debt counselor or financial advisor.
Personal debt is a complex issue with no easy answers. Although taking out debt to finance large purchases can be beneficial, it’s crucial to understand the possible risks. You can manage your finances wisely and stay out of trouble by being aware of the elements that lead to debt accumulation and the possible repercussions of being in debt.
Frequently Asked Questions
Q: What is the average household debt in the UK?
A: The average household debt in the UK, including mortgages, was £65,479 in 2022.
Q: What is the average personal debt in the UK?
A: In 2022, the UK’s average personal debt, excluding mortgages, was £15,400.
Q: What percentage of UK adults have debt?
A: Around 62% of UK adults had some form of debt in 2022.
Q: What are the most common types of debt in the UK?
A: The most common types of debt in the UK are mortgages, unsecured loans, student loans, and car finance.
Q: What factors contribute to debt accumulation?
A: Factors that contribute to debt accumulation include low income, high living costs, unexpected expenses, poor financial management, and easy access to credit.
Q: What are the potential consequences of being in debt?
A: The potential consequences of being in debt include stress and anxiety, damage to your credit score, and legal action.
Q: How can I manage debt?
A: You can manage debt by creating a budget, consolidating your debts, and seeking professional help.
Additional Resources
- Office for National Statistics: https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/debt
- Money Advice Service: https://www.moneyadviceservice.org.uk/en
- National Debtline: https://www.nationaldebtline.org/
Disclaimer
This article is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial advisor before making any decisions about your finances.
Policymakers are overlooking this crisis
While rising mortgage costs tend to dominate national discourse, JRF Chief Economist Alfie Stirling and Senior Economist Rachelle Earwaker write in a blog that the affordability of short-term credit remains a crucial factor in preventing an already brutal crisis from getting much worse. We run the risk of a tragic second wave of crisis as millions of people struggle to stabilize their incomes further due to increasingly expensive credit as interest rates rise and inflation declines. “We are at risk of sleepwalking into a second wave of avoidable crisis, leaving more families unable to pay their bills for longer,” JRF Chief Economist Alfie Stirling stated. The rising cost of money itself is putting family finances in jeopardy, even as the rate of increase in prices for necessities slows down. For many, the slight relief that energy and fuel prices may provide will be offset by increased credit card, overdraft, and mortgage costs.
“The 2020s so far has been defined by a continued lurch from one economic crisis to the next. Each highlights the deeper underlying vulnerabilities of the UK and the inability of successive governments to expand and establish various types of economic security, such as public services, housing, income safety nets, and efficient energy production. The upcoming months may prove to be a watershed in the decade’s history, but a new direction is needed to put an end to the ongoing insecurity. ”.
Feelings of insecurity will last generations
JRF Director of Policy and Insight Graeme Cooke contends in a recent essay that combating insecurity is crucial to building a society that is happier, healthier, and more productive. But that isn’t feasible given the millions of households that don’t know how they will pay for food and clothing on a weekly basis due to extremely precarious living conditions.