Increasing numbers of working households are being pushed into problem debt by low wage growth, cuts in tax credits, and rising prices for essentials like food and fuel, according to new research. The study was conducted by the Personal Finance Research Centre at Bristol University on behalf of a charity specialising in consumer credit issues.

Key findings

• Changes in personal circumstance that result in a drop in income are a major cause of financial difficulties, particularly when combined with high levels of existing borrowing. These are very often employment-related changes such as redundancy or job loss.
• Even for people who are in work, reduced hours, temporary contracts and fluctuating self-employment increase the risk of financial difficulties, particularly for households already on lower incomes.
• As the pressure on household finances intensifies, there is evidence that more people are using short-term payday loans to try and make ends meet.
• Many debt advice clients had little or no idea about the total amount of credit they were accumulating. Spending across more than one credit card makes it easier for people to underestimate the total sum they owe.
• A growing number of working people with debt problems owe money to their friends or family when they come for help: 20 per cent in 2012, up from 16 per cent in 2011.
• The strategies people use to try and put the brakes on their deteriorating financial situation are a stop-gap at best. Unsure what their other options might be, borrowing is often a stock response. As a result, their financial situations become extremely difficult and entrenched by the time they seek help.
• Although working people covered by the study acknowledged responsibility for their situation, they felt lenders are also partly to blame. They questioned why they had been allowed to borrow so much, in some cases even after a drop in income.

Source: Sharon Collard, Andrea Finney and Sara Davies, Working Households' Experiences of Debt Problems, StepChange Debt Charity
Links: Report | StepChange press release