More than three out of ten British adults (34%) say they would be most likely to take on extra debt if they were faced with a sudden gap in their finances, according to new research from R3, the insolvency trade body.
Thirteen percent of over 2,000 people surveyed by Savanta ComRes for R3’s latest Personal Debt Snapshot say they would use a credit card if they were faced with a sudden gap in personal finances. Eleven percent would ask family or friends for a loan, 7% would use their overdraft, 2% would apply for a bank loan, and 1% would apply for a payday loan (a combined 34%).
Positively, nearly half (48%) of respondents say that they would be most likely to use personal savings as a solution to an unexpected gap in their personal finances.
R3 President Duncan Swift said: “A high proportion of British adults are very vulnerable to financial shocks.
“It’s encouraging that almost half of British adults have a financial cushion available to them, but it’s equally discouraging that plenty of others would feel forced to borrow to cover a gap in their finances.”
Duncan adds: “Low interest rates do make borrowing more affordable in the short term, but getting into debt can make that gap in finances even bigger over time. It can lead to a cycle of debt and stress which is hard to break, especially when emergency borrowing is added to pre-existing debt.”
Worryingly, 3% of British adults would cover a gap in finances by not paying rent or utility/telecoms bills.
Duncan comments: “Skipping other bills is an option of last resort, and it’s a concern that some people find themselves in this situation. Not paying bills can store up problems for later.”
Homeowners are significantly more likely to say that they would be most likely to use personal savings to address an unexpected gap in their personal finances (55%) than those living in rented accommodation (34%).
However, younger British adults (those aged 18-34) are significantly more likely than their older counterparts (those aged 55+) to say that asking family or friends for a loan or support would be one of their top three most likely solutions (61% vs. 20%).
And more women than men say that asking family or friends for a loan or support to address an unexpected gap in personal finances would be one of their top three most likely approaches (45% of women vs. 36% of men).
Duncan Swift continues: “The first step for anyone who is concerned that what they owe may outstrip what they earn – even if it’s temporary – is to speak to a qualified expert, like an insolvency professional. They’ll be able to help you fully understand your finances and the options you have for resolving the issues you face. And the sooner you seek advice, the more options you’ll have – and the more time you will have to make a decision about how you move forward.”