Cost-of-living crisis ‘enters dangerous new phase for low-income families’

Yesterday’s decision to raise interest rates from 5% to 5.25% sees the cost-of-living crisis enter a dangerous new phase for low-income families, it has been claimed.

Millions are facing a debt time bomb, according to the Joseph Rowntree Foundation (JRF). The social change organisation pointed out that rising interest rates aren’t just a worry for people with mortgages.

Rising cost of borrowing for low-income families

In May, 5.7 million low-income families had at least one type of unsecured debt, such as a:

• loan from a bank or credit union
• credit card
• current account overdraft
• payday lender loan
• licensed doorstep loan

In total, they owed about £14.2bn, an average of £2,500 per family. In May, the yearly cost of paying the interest on this debt stood at approximately £3.9bn, an average of £680 per household.

Just 18 months previously, it would have cost these families about £210m less in interest payments.

Borrowing to pay bills

Research by JRF shows 2.3 million low-income families are being forced to borrow just to pay their rent or energy bills.

Going without essentials

More than nine out of ten households (92%) who reported borrowing to pay bills are going without at least one essential. Over half (53%) are trying to get by without three or more essentials.

Eight out of ten families (82%) don’t have enough food, or food of a high enough quality, to meet their basic needs.

Falling behind with bills

Borrowing to pay bills isn’t stopping families falling behind with their payments either. Three quarters (75%) are behind with at least one bill or the repayments on one debt. Nearly half (44%) are behind with three or more bills.

Turning to loan sharks

Over half of those borrowing to pay bills have turned to loan sharks, doorstep lenders, payday lenders or pawn shops. A third have three or more loans with these lenders.

On average, people forced to borrow to pay bills have £4,450 of debt compared to £2,740 for those who aren’t in this situation.

Sleepwalking into a second crisis

JRF Chief Economist Alfie Stirling warned:

“We are at risk of sleepwalking into a second wave of avoidable crisis… what small respite might be gained from energy and fuel prices stabilising will be lost through rising costs for credit cards, overdrafts and mortgages.”

What help is there?

If you’re struggling to cover your essential bills, why not use our free benefits calculator to check you’re getting all the benefits you’re entitled to.

If you’re on a low income or claim benefits, you may also be entitled to a reduction on your council tax bill of up to 100%. Check to see if you’re eligible.

Local councils have been given a share of £842m to help families struggling with the cost-of-living crisis. Visit your local council’s website to see what help is being offered in your area.

And if you need debt advice, we’re available over the phone or 24/7 online. Don’t struggle on alone. Get in touch today.