Low income households increasingly turning to high cost credit

11 June, 2013

People on low incomes are increasingly turning to high cost forms of borrowing such as home credit, catalogues and payday loans, according to new figures from StepChange Debt Charity. Since 2009, people with incomes of less than £10,000 seeking the charity’s help have fewer and smaller debts on traditional forms of credit such as personal loans and credit cards. In contrast, the numbers with debts to high cost lenders and the amounts owed have risen markedly.

The charity is concerned that this financially vulnerable group risks worsening their financial position through unaffordable borrowing.

Traditional credit declining

• In 2009, of those people with incomes of £10,000 or less, 72.9 percent had credit card debts, this fell to 60.7 percent in 2012. In the same period the numbers of people with personal loans fell from 60.1 percent to 46 percent.
• Over the same period the amount owed by this group on credit cards fell from £8,704 to £6,873, while the amount owed on personal loans fell from £9,532 to £7,840.

High cost credit rising

• In 2009 just 1.6 percent of these low-income clients had payday loan debts, with the average balance standing at £906. By the end of 2012 these figures had increased to 15.8 percent and £1,145 respectively.
• Debts on home credit rose through the 2009-2012 period. In 2009, 6.6 percent of those with incomes of less than £10,000 had debts on home credit, by 2012 this had risen to 8.7 percent. The amounts owed rose from £1,020 to £1,045.
• Catalogue debts increased between 2009-2012. In 2009, of the charity’s low income clients, 22.9 percent had catalogue debts, rising to 27.2 percent in 2012. Over the same period, the average amount owed rose from £1,304 to £1,668.

Higher earners and slower declines

For higher earners (those with incomes of over £30,000) the reduction in the numbers with traditional credit debts was significantly slower. 

• In 2009, 94.7 percent of those with incomes of over £30,000 had credit card debts, by 2012 this had fallen to 90.6 percent.
• Over the same period the numbers of higher earners with personal loan debt fell from 76.9 percent to 69.7.

While the increases in catalogue and home credit debts are not as pronounced as for payday loans, this may reflect the differing levels of availability of these forms of borrowing.

Delroy Corinaldi, external affairs director for StepChange Debt Charity said: “The extreme squeeze of household budgets coupled with tighter lending restrictions is placing those people down the income scale in an acutely vulnerable position.

“Many people are being placed in the unenviable position where they are turning to high-cost credit simply to make ends meet. We urge anyone in this position to seek debt advice and support at the earliest opportunity”.