Cost of living pressure rising as a cause of debt, as borrowing increases in March

New data from StepChange Debt Charity shows that the cost of living pressure continues to rise for financially stretched households – it was the third most commonly cited reason for debt in March, up from the fourth most common in February and the sixth most common in 2021.

While 6% of clients in 2021 cited the cost of living as a driver of their problem debt, this had more than doubled to 13% by March, even before the main energy price rises took effect in April.

A third of clients in March (33%) had a negative budget – where income is insufficient to meet essential costs – up by four percentage points since January.

At the same time, other new data out today from the Bank of England shows consumer credit borrowing remaining high, with an additional £1.3bn net borrowed in March. Part of this is likely to reflect “desperation borrowing” on the part of households trying to make ends meet, reflecting the findings of StepChange research earlier this year, which found that 3.5 million people borrowed to pay essential bills last year, and that 26% of StepChange clients surveyed said they were offered additional credit when they were in financial difficulty.

Commenting on the latest client data, Richard Lane, StepChange Director of External Affairs, said: “High inflation in the cost of basic goods and services, such as energy bills and food, means that those households who already have little ability to flex their spending cannot absorb higher costs without incurring debt or suffering significant hardship.

“With the March data reflecting the situation worsening even before April’s energy price hikes, the months ahead will be challenging for households on tight budgets. We continue to urge the Government to recognise the uniquely problematic situation in which many lower income households currently find themselves, and introduce tangible, targeted measures to address the shortfall between their costs and their income.”