Home Insights & Advice As the pandemic drags on, we look at how many people are in debt because of Covid 19

As the pandemic drags on, we look at how many people are in debt because of Covid 19

by Lily Ruaah
13th Jan 22 11:36 am

There were 1,054 reported redundancies in the UK between August and October 2021. The Covid 19 pandemic is still affecting the job market, with restaurants and bars offering reduced hours, retail shops closing and companies downsizing due to money losses over the last two years. By October 2021, the average UK adult owed £3,713 in unsecured debt, but how much of that was due to the pandemic?

People who were placed on furlough or faced reduced hours may have turned to options such as Buy Now, Pay Later. These can seem appealing because often they don’t affect your credit rating – and you’re thinking, I’ll have the money next month when things open again. But it’s when you can’t pay next month that issues arise. Companies like Klarna may seem harmless but small personal loans like these can give you a bad credit score and affect your ability to borrow in the future.

In March 2021 total household debt in the UK was £1,892 billion – 2.4% more than the previous year. This might seem like a small percentage but ever-climbing debt in the UK is a crisis. The largest areas of the UK market affected were hospitality and retail with shops, restaurants, and pubs closing. In the first quarter of 2021, it was reported by the UK debt service that 476,000 18-24 year olds were unemployed. With these job sectors often offering work to these ages, many young people found themselves with limited ways to make money – and in turn finding themselves turning to creditors. Student debt already affects 1.5 million students each year, and by the time students finished their studies, the average debt owed is £45,000 (study taken in 2020). On top of this, without work being available, students – and others affected by the pandemic such as those made redundant – are turning to personal loans.

It’s easy for debt to spiral out of control. The greatest issue of borrowing money is when people find themselves taking out multiple debts with multiple creditors. This is where problems like missed payments and legal action occur – you always need to be on top of what you owe and who you owe it to.

But how are people getting accepted for further credit without paying off what they currently owe? Even with a poor credit score, you’ll be considered for personal loans. Often lenders, that offer services like payday loans or cash advance loans, will accept you even with no credit. When you’re looking into personal loans, the most important thing to remember is to check the APR variable – there’s always a lot of competition so shop around. If a company is accepting you with very bad or no credit, often their APR will be very high.

It’s not just the individual who has gone into debt over the pandemic – the government has suffered large pay-outs when dealing with the virus. In the first year of the pandemic, the UK government borrowed £299 billion – and they’re expected to borrow a further £200 billion in 2022, in tackling Coronavirus.

However, there are some positives. The House of Commons reported that the household savings ratio has increased from 8.9% in January-March 2020 to 25.9% in April-July 2020, this is the highest increase since 1987. This is probably due to the lockdowns, as people were spending less on nonessential items or outside-the-home activities. As we move to and from lockdowns and the economy opens again, this figure fluctuates.

From March 2020 to May 2021, many households spent less. This meant that as a nation we were less likely to borrow money and obtain debt – meaning unsecured debt fell each month throughout this period. Credit scores also appeared to rise over the course of the pandemic. Experian announced in October 2021 that their average UK credit score went up by 5 points in the last year. They explained this could have been helped by the introduction of the emergency payment freeze, as well as people saving more and spending less during the lockdowns.

If you’re struggling with debt because of the Covid 19 pandemic or for other reasons, you’re not alone. The average debt per UK household in October 2021 was £62,965.  No matter the size of your debt, there are solutions out there available to you.

If you’re dealing with debts from multiple creditors, you might want to consider a debt consolidation loan – this will enable you to take your multiple monthly payments and consolidate them into one affordable monthly payment. A debt consolidation loan could be an ideal option for someone challenged with bad or no credit, as they’ll consider everyone.

Most importantly, make sure you research your options when dealing with debt, and speak to a financial advisor as they know what they’re talking about.

 

Author bio

This article was provided by Lily Ruaah, Content Writer at Consolidation Express. A UK-based consolidation loan broker, the company – and its advisors – have a wealth of knowledge when it comes to this debt solution.

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