Bolts from the blue sending many of us into the red

MANY households have faced income shocks amid the pandemic. But even before the crisis, lots of us had been hit by unexpected expenses, which pushed their finances into the red – more than two-fifths (44%) of people have faced expenses out of the blue in the past 12 months, according to a survey from Hargreaves Lansdown.

There were huge variations in the size of Two in five have these bills. One borrowed to pay in five were a surprise bill in under £250, but the last 12 months one in 20 were for more than £5,000. The average unexpected bill was for £1,269.

Two in five (41%) people hit by an unexpected bill borrowed money to cover at least some of the cost. Some used their credit card, some dipped into their overdraft and a smaller proportion turned to a payday loan.

The younger you are, the more likely you are to borrow to cover an unexpected cost, the survey of 2,000 people by Opinium for Hargreaves Lansdown found.

“None of us expected any of this – from the dramatic changes in our lifestyles, to the horrible cuts in income and the battle to make ends meet,” says Sarah Coles, personal finance analyst at Hargreaves Lansdown.

“But while this has been far more alarming than the usual bolts from the blue, there’s nothing out-of-the ordinary about being blindsided by the unexpected.

“In the past year, almost half of us have been hit with a horrible surprise bill, which sets us back more than £1,000 on average. And two in five of us have had to borrow to cover the cost.”

Sarah says if you’re already reeling from a financial shock in the current crisis, and you don’t have any savings to fall back on, there are steps you can take to cut costs – from cutting out luxuries at one end of the spectrum, to arranging debt payment holidays at the other end.

She adds: “But if you’re lucky enough still to be working and earning your full wage, you still have time to save what you can to provide you with a safety net. Ideally you should have three to six months’ worth of expenses in an easy access account to cover emergencies. But at this stage, simply saving as much as you can, as soon as you can, could make a big difference if your circumstances change.”