Debt spiral
A very small proportion of the UK population are declared insolvent, but serious debt, or the risk of serious debt, affects millions of people in the UK. Whilst around 1.5 million people are finding it seriously difficult to pay off their debts, many more are potentially likely to join the debt spiral, if they were to suffer a major financial incident, such as serious ill-health or losing employment.
Which step of the debt spiral staircase are you on?
To work out where you are on the credit spiral, see which of the following you can say 'yes' to.
| 0) If I lost my income, my savings wouldn't be enough to survive for three weeks or so |
If this doesn't apply to you, you are in the minority. More than
half the population could not survive for 17 days
(52%) if they lost their
income.
Tip: The amount that people are regularly saving has
fallen to a long-term low, in part driven by food and fuel
inflation. However, if you are able to do some regular saving,
however little, it helps build a fund to cushion you against future
problems.
| 1) I could not afford more than £500 to meet a household emergency without borrowing money |
45% of people say this applies to
them.
Tip: If you do have a household emergency, try not to
plunge deeper into debt to get out of it. A small fund can help you
repair things rather than replace them, or to purchase a second
hand replacement rather than buying new, and incurring further
debt.
| 2) I have not got enough savings to survive for 11 days if my income disappeared |
This applies to just over a third of households
(36%).
Tip: If your savings are lower than this,
fluctuations in cash flow mean that you will go overdrawn
periodically if you aren't able to control your spending very
tightly. Keep a close eye on your bank balance - going into
overdraft can be relatively expensive, even if you are only
overdrawn by a small amount. An agreed overdraft will be cheaper,
so if you are likely to need to use an overdraft facility it makes
sense to agree one in advance, providing there isn't a large fee
for this.
| 3) I owe money to my energy supplier |
According to uSwitch.com, 6.8 million households are in debt to
their energy supplier. Over a quarter
(26%) of energy customers were 'in
the red' on their last energy bill and two million consumers are on
debt repayment programmes to energy suppliers.
Tip: Check where you are using electricity and gas -
is there anything you can do to reduce your
consumption.
| 4) I spend more than 30p of every £1 I earn on unsecured debt re-payments. |
Over 14% can say yes to this one.
This is twice the level it was a year ago, and the same research
shows that 6% of people are spending half their income on unsecured
debts. Government guidelines suggest a threshold for becoming over
indebted as an individual spending over 25% of their gross monthly
income on unsecured repayments.
Tip: More than 10% of the population have not added
up their total debts. However difficult this may feel, it is
essential to know where you stand. Then you can start to take
action.
| 5) I have borrowed money to help meet my housing costs |
11% of us (2.8 million households)
have borrowed money to help meet our housing costs in the past 12
months. When core living costs need to be funded by debt, this is a
real indicator of you being at risk of serious debt.
Tip: Make sure you are spending on priorities, and
consider whether there is anything you can do to save money on your
regular costs - transport, food and utilities.
| 6) I am worried I am going to become bankrupt |
Over 100,000 people will be declared insolvent this year. That's
one in every four hundred UK citizens, or a quarter of one per cent
(0.25%). It may not sound much, but
it will take them some years to work through the implications of
it.
Tip: The earlier you take action, the more likely it
is that you can minimise the impact of your debt. There is plenty
of free advice available - The Consumer Credit Counselling Service
(http://www.cccs.co.uk/) is a good place to
start and also see our advice page Are you struggling with
debt?.
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Sources |
