Lately in red: how borrowing has changed during the pandemic

A year into the pandemic we were more able to cover one-off costs out of the blue with lockdown savings, but now we’re back to borrowing. 20% of us put at least some of the cost of unexpected expenses on a credit card in the past year, while 13% borrowed from family and friends and 10% dipped into their overdraft. Meanwhile, rising prices mean that habitual borrowing is on the rise, so that now almost a third of people spend at least some of the month in the red.

Data from a survey of 2,000 for Opinium in April 2020, 2021 and 2022.

Sarah Coles, senior personal finance analyst, Hargreaves Lansdown: “A year into the pandemic, more of us had built a cash cushion out of lockdown savings, so that when we were hit with an expense out of the blue, we could cover the cost without going into the red. A year later we’re roughly back where we started, and in the meantime our debts have gradually been creeping up.

One-off expenses

The pandemic hit people very differently, with one in three either having to borrow more or ending up with no extra savings at the end of all the lockdowns. However, for the two thirds of people who kept enough of their income and saw their outgoings drop, it was the chance to build a cash cushion.

It’s why when faced with an expense out of the blue during the first year of the pandemic, only 21% had to put it on a credit card, 8% borrowed from family and friends and 7% dipped into their overdraft. All of these figures were down from a year earlier.

However, a year down the track, almost 50% of us have spent up to half our lockdown savings. It means that when faced with an unexpected expense, we were back to borrowing: 13% getting a loan from friends and family and 10% using an overdraft.

The change in credit card usage is notable though, because while other forms of borrowing rose, this fell back slightly even from a year earlier. At the same time, the rise of buy-now-pay-later means 7% used BNPL to cover unexpected costs. It seems some people now prefer this option, because as long as they keep up with instalments, there’s no interest to pay.

The gradual creep

Meanwhile, more habitual borrowing is on the rise. Each year we ask people how much of a typical month they spend in the red – which is defined either as using their overdraft or having more outstanding on a credit card or other short-term borrowing than they do in their bank account. The changes have been small each year, but every year the numbers are creeping up.

At the outset of the pandemic, 72% of people said in a typical month they didn’t spend any of it in the red. This has dropped to 69%. It’s still far more common to borrow for a small chunk of the month, but the number of people spending more of the month in the red has also risen, so that now 10% of people spend at least two weeks of each month in the red, while almost 20% never get out of debt.

It’s still younger people who are habitually borrowing for more of the month, but their propensity to do so has risen since the start of the pandemic. Now, around half spend at least some of the month in the red, compared to 41% at the start of the pandemic.

There’s a real danger that rising prices will exacerbate the rise of regular borrowing. Higher energy, fuel and food costs will mean more people running out of money before the end of the month.

If you haven’t drawn up a budget and worked out how you’ll cover significant jumps in your bills, then now is the time to do so. There’s every chance you have already made the easy cuts by shopping around and cutting back on luxuries. It means there may be more difficult decisions and sacrifices to make.

It’s tempting to try to put it to the back of your mind, and borrow through this period, but there’s every sign that higher inflation will be around for much of the rest of the year. The more you borrow, the more of your cash goes on interest and repayments, which makes it even more difficult to make ends meet.”