Soaring cost of living is forcing Brits into debt

THE cost of living crisis is going from bad to worse, as inflation rockets, base rate hikes force up borrowing costs, and the economy slows amid recession fears.

Soaring energy and fuel costs will drive up household spending to an average of £705 a week by 2024, yet weekly incomes will rise to just £680, leaving the average household £100 short every month, new research from Yorkshire Building Society shows.

One in four say managing money is now their main worry, while nearly one in five have lost sleep over price increases, says challenger bank Shawbrook.

Sally Conway, head of consumer communications, said “overwhelmed” Brits face price hikes seemingly every day.

The Bank of England is adding to the pressure by lifting base rates to keep a lid on inflation. Broker Trussle has said this will add £1,000 a year to the cost of servicing a £224,400 mortgage, with further rate rises to come.

Credit card users are set to borrow an extra £9 billion over the next six months, taking our total debt to £69 billion, says subscription lender Creditspring.

Some 8.5 million adults – one in six – will have to borrow to make ends, rising to a third among those aged 18 to 34.

Credit cards will feel like a lifeline to many but that help comes at a cost, said Creditspring co-founder Neil Kadagathur.

Worse, up to 15 million can’t get credit from mainstream banks and building societies, and could fall victim to unscrupulous lenders and loan sharks, he said.

Bank of England figures show the average credit card APR now charges 21.49 per cent, the highest in almost 25 years.

Overdraft rates are at a record high of 34.07 per cent, up from an average of 20.99 per cent at the start of the pandemic in February 2020.

Personal loan rates are 3.96 per cent for those borrowing £10,000, but that’s up from 3.37 per cent in September 2020.

Struggling borrowers should first pay down their most expensive debt, and consider consolidating to cheaper credit such as personal loans, said Freedom Finance chief marketing officer David Hendry.

Another worry is that growing numbers of consumers are using controversial “buy now, pay later” credit to buy essentials.

BNPL is typically used to spread the cost of big one-off expenses, but many now use it to buy groceries, said Hargreaves Lansdown senior personal finance analyst Sarah Coles: “The monthly payments can be hefty while missed repayments will incur late fees and damage your credit score.”

This is Mental Health Awareness Week, and more than one in five Brits say money worries are piling on more pressure, according to credit management company Lowell.

Over the past 90 days, the numbers Googling “I can’t afford my bills” has jumped more than 400 per cent.

Those struggling can get support from Citizens Advice, StepChange, National Debtline and MoneyHelper.org.uk.