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18.04.2018

Falling Living Standards, Unexpected Bill and Rising Living Costs

Falling living standards, unexpected bills and rising living costs are quickly becoming the stuff of nightmares for many UK consumers. These were the findings of the TDX Group, a company owned by Equifax. On speaking with online consumers, TDX found, of those with a personal loan, 25% believed unexpected bills were the biggest threat their finances faced, whilst 20% cited rising living costs.

Financial Resilience at an all-time Low

These findings, which will resonate with millions of consumers, in particular British Gas customers. The energy supplier has just announced their second increase on fuel bills in 7 months, by 5.5%, (or the equivalent of an extra £60 per year, representing an above inflation increase), demonstrating consumer financial resilience is now at an all-time low.

The Bank of England Monetary Policy Committee are due to meet again in May, and it is expected there will be another, albeit small, increase to interest rates, following their decision to increase them for the first time in ten years this February.

The danger is, as was highlighted by the UK financial regulator, the Financial Conduct Authority, in its recent  business plan, that although interest rate increases are expected to be small, they will still prove too much for many consumers already struggling with problem debts, which the Money Advice Service believes could amount to 8.3 million people.

The Lengthiest Fall in Living Standards since Records began

The TDX Group also found that 68% of those interviewed thought they would struggle with a debt repayment plan of even as little as 10% of their salary, showing that many households are now struggling with the accumulated effects of rising living costs and stagnating incomes, during the longest period of falling living standards since records began in the 1950s.

Richard Haymes, Head of Financial Difficulties at TDX Group, said: “Personal debt is continuously on the up in the UK and it’s increasingly important customers are aware of their debt levels, only taking on loans they can afford to pay…although it’s encouraging consumers recognise that repayments exceeding 10% of their monthly income would be difficult to manage [they now] need to rethink their spending priorities to better manage the debt.”

Building Financial Resilience

The growing issue of problem debt is now one UK consumers cannot afford to ignore. The time for hoping things will improve in the short-term has evaporated, with few financial think tanks and no debt charities now suggesting they will.  Personal debt levels in the UK are now at 150% of household income. Since people have had no incentive to save, and experienced low interest rates, the reality is that the financial resilience of UK consumers has now been eroded to the point where many would struggle with an unexpected bill or continued increases to the cost of living.

In the short term, the solution to this for many will be to stop using easy to access and cheap credit to bolster stagnating incomes, and instead to begin maximising their household income by finding savings that can be made, whether it’s switching service providers or taking advantages of increases in income tax personal allowances and tax bands, to begin paying down those outstanding credit cards and overdrafts. In essence, the spending priorities of many consumers, if they wish to avoid taking more drastic action later, will have to centre on reducing their overall level of indebtedness and beginning to rebuild their savings.

Cutting your Cloth to Fit

However, for many this will not be possible. For many, the rise in personal debt has not been the result of increased unnecessary spending, or even financial ignorance, but an increasing gap between what they have coming in and what they have going out: a gap that they have had to, out of necessity, bridge with increased borrowing that they can no longer afford to repay.

For these consumers, the reality is they still must address their over-indebtedness, as a failure to do so, will only result in increased debt levels, even if they don’t borrow anything further, because of interest rates and charges. For many, making such changes will not come easy, as it will be a final recognition that the living standards they have been enjoying are no longer sustainable and will have to be reined in.

However, the effects of addressing problem debts does not have to be brutal, and the use of formal debt remedies can mitigate the worst effects of making necessary changes to household finances.  With the focus on ensuring that debtors should still have a reasonable standard of living, and that creditors need to show forbearance to those that are genuinely in need of help, more and more consumers are now using remedies such as Individual Voluntary Arrangements and Protected Trust Deeds to get on top of their financial difficulties.

If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.