Credit: friend or foe?
New figures from the Debt Advisory Centre show that up to 12% of Britons used credit to buy their groceries last month, while 4.5 million more admitted to using a loan or credit card to cover utility bills. With household debt projected to increase by 62% by 2020, we ask whether credit is really our friend.
A precarious situation
In defence of credit, much of the current problems are not directly down to lenders. Employment in the UK is rising, but job security isn't. Figures from the TUC suggest that one in 12 people are in "precarious employment" like zero-hours contracts, fixed-term contracts and agency work. A huge rise since 2008.
When we consider that spells of unemployment are twice as common among those in low-paid work, the likelihood of someone needing credit to cover basic costs is much higher than it was pre-financial crisis. In this context, credit represents the last resort for people who otherwise couldn't afford their groceries. So friend seems a fair term.
Unfortunately, the way credit is sometimes packaged can be far from friendly. The recent behaviour of payday loan companies, ultimately resulting in the government capping obscene levels of interest, is a prime example. High interest means a small sum can quickly grow into much larger debt, causing a debt spiral that's much worse than the original problem.
Ironing out exploitative behaviour in the credit industry is one important step towards rehabilitating credit, and returning it to its rightful role as supporter of those in need, and those who aspire to things like home ownership or running and expanding a business. Another is financial education.
Britain is struggling with its approach to debt. Students now hold tens of thousands of pounds of debt before they even have a full-time job. This risks creating a complacent attitude towards debt. Similarly, rising house prices risks increasing mortgage lending beyond sustainable levels: one of the primary causes of the financial crisis.
If the finance industry can work together to help people understand the implications of and uses for debt, we may be ability to rehabilitate its image. If we do nothing, it will continue to be viewed unfairly as a foe.
For more information about our sensitive debt collection services, contact a Dukes Bailiffs advisor today.