REDUCED hours, rising prices, low wage growth, poor savings returns and cuts in tax credits are putting a massive strain on working families, experts warned last night.
Those dealing with the fallout say time and time again people facing problems don’t seek help, they just borrow more money to try to pay their way out of trouble and end up getting trapped in a debt spiral.
Figures from the Office for Budget Responsibility have forecast that household debt will rise from £1.6 trillion in 2011 to £2.1 trillion by 2015.
Linda Isted, from debt charity Debt Advice Foundation, said: “Some people do seek help straight away – particularly in circumstances such as redundancy when they feel that their financial difficulties are not their fault.
“But many people try to cope on their own for far too long.
“There is much talk of the ‘squeezed middle’ at the moment, and the effects of recent tax and benefit changes affect everyone differently.
“But what we do all have in common is a reluctance to run our family and personal budgets efficiently.
“Very few of us know exactly how much money goes into and out of our current account each month; we lose track of direct debits and loan repayments, we forget what store cards we have and how much we owe on them.
“And many of us don’t set money aside regularly even for the big expenses we know are coming up, like holidays and Christmas.”
She says people can find themselves in debt for a number of reasons including a spell of illness for somebody who is self-employed, redundancy and divorce which means a couple have to split up their finances and run two homes.
Recent research has shown how working families are being hit hard.
Low interest rates also mean many reliant upon savings have seen their retirement income come under increased pressure. Figures from the StepChange Debt Charity also highlight how many pensioners in the region are struggling, with the average over 60 in the region seeking help from it owing £19,141 in unsecured debt.
Experts also highlight how pressures can get worse at this time of year. One recent survey estimated 59 per cent of Britons were “buying Christmas with their credit card” this year.
Consumers were expecting to put an average £448 on the plastic for festive-related purchases, with 10 per cent expecting to up that figure to £1,000, a poll for uSwitch found.
Michael Ossei, USwitch personal finance spokesman, said: “Many are turning to their flexible friends to help see them through to the new year.
“The last thing people want to do is scrimp at Christmas, but it’s easy to get carried away and spend more than you mean to at this time of year.”
During the last twelve months StepChange says 60 per cent of the clients it has helped were from households where either one or two members of a family were in work.
The Personal Finance Research Centre, at Bristol University, was recently asked by the charity to examine the issue.
Their report found: “In these challenging economic times, working households are increasingly vulnerable to problem debt and serious financial difficulties. First, they have higher levels of consumer credit borrowing compared to other households. And second, they face a heightened risk of employment-related drops in income as well as low wage growth, tax credit and welfare benefits cuts and the rising cost of living.”
Researchers found that for some working people credit had been readily available in the good times and their “self-image was strongly tied to their job and their earning power” and they “used credit to buy the lifestyle that they thought they deserved and which signalled to others their success”.
As less cheap credit has been available in the downturn there is growing evidence people are taking out payday loans to try to make ends meet.
In the first three quarters of 2011 25,476 people have sought the charity’s help with payday loans. This far exceeds 17,414 for the whole of 2011.
Delroy Corinaldi, external affairs director of StepChange Debt Charity, said: “The dramatic rise in problem payday loan debt is alarming as this type of debt is expensive and can spiral out of control very easily.”