Dangerous debts on the rise: from higher earners to the most vulnerable

A third of people have poor or very poor debt resilience. Higher earners are more likely to score poorly for debt resilience than lower earners. 38% of those in the fourth quintile (who earn more than three fifths of the population) have poor or very poor resilience. However, some vulnerable groups also score poorly, including single parents and those who say they’re always running out of money before the end of the month.

Figures from the HL Savings & Resilience Barometer third wave, January 2023.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown said: “Dangerous debts are on the rise. After more than a year of desperately trying to keep up with runaway prices, millions of us are running out of road. The HL Savings & Resilience Barometer reveals that debt is becoming a serious threat, and while higher earners tend to carry a bigger debt burden, lower earners are struggling too.

“Typically, the lion’s share of debt is owed by wealthier people, who tend to borrow more. They may feel more comfortable owing more money, because they’re confident their income will cover the cost. However, even those with plenty of wiggle room in their budgets shouldn’t be too keen to take out more credit, because the last few years has revealed just how easy it is to be caught out by the unexpected.

Lower earners face debt issues

“Overall, a third of people score poor or very poor for debt resilience, and while it peaks at 38% for those in the fourth quintile (who earn more than three fifths of the country), it’s still 32% among the second and third quintiles (who only make more than the bottom fifth of earners). This group are less likely to be borrowing because they feel on top of their ability to repay – and more likely to borrow because they don’t feel they have any other choice.

“Some vulnerable groups in particular have worryingly poor scores, with 37% of single parents suffering poor or very poor debt resilience, along with 47% of those who say they are always running out of money before the end of the month. And while debt feels like the answer to our problems in the short term, it creates huge issues of its own. The struggle to make ends meet becomes even harder when you have interest and debt repayments to worry about on top of everything else.

The lowest earners face debts of another kind

“Those on the lowest incomes, and people who have borrowed to the hilt, are likely to find it more difficult to get credit cards or loans. Bank of England statistics show that banks are increasingly wary about lending at the moment, because they’re concerned tougher times ahead will force more people to miss payments.

“ONS statistics show that a growing number have started missing bill payments instead. Almost one in ten people (8%) had a direct debit, bill or standing order they’d been unable to pay in the previous month, which rose to one in ten (10%) of those aged 16-29, and an alarming 13% of those aged 30-49.

What can you do?

“Unfortunately, missing bills is even more problematic, and the longer you struggle for, the worse it gets. It means that as soon as you see a problem, it’s worth getting help. If you’re struggling with debt payments, your first port of call is your lender. You don’t have to wait until you’ve missed payments: you can talk to them even when you see problems looming on the horizon.

“If you have missed bills, or you’re worried that you will, talk to your providers, explain the situation, and see whether you can work out a repayment schedule that you can afford. You should also be offered the chance to switch to a cheaper tariff – if there’s one available – to keep your costs down in future. If it’s an energy bill, check whether you qualify for any grants or help from your provider – who has a duty to help people who are really struggling.

“It’s also worth approaching charities, like Citizens Advice, who can help you access any help, including any benefits –  which could also open the door to more cost-of-living payments from the government. Debt charities, like StepChange, can help you deal with problem borrowing, and can talk to companies you owe money to in order to set up an affordable repayment plan.”