February debt timebomb

We're expecting unprecedented demand for our free services In February because of a ‘perfect storm’, with 1.5 million fixed-rate mortgages coming to an end, energy price rises from 1 January, and large amounts of credit - including buy now, pay later (BNPL) - having been used to fund Christmas.

The severe and far-reaching effects of cost-of-living pressures are highlighted by the fact, amid the celebrations on Christmas Day, hundreds of people went onto the Money Wellness website to access online debt advice.

Sebrina McCullough, head of external relations at Money Wellness, said: “The cost-of-living crisis wreaked havoc on household finances throughout 2023, with millions struggling to keep their heads above water.

“With many more fixed-rate mortgages – lots below 2% - set to come to an end during the first quarter of 2024 and rents at an all-time high, households are facing another difficult year.

“With rising housing costs, a 5% hike in energy prices, plus the post-festive debt timebomb all biting at once, we believe we’ll see more people than ever before accessing our support from February onwards. And we’re gearing up to meet this demand.”

25% of people seeking debt advice from Money Wellness in November were in arrears with their mortgage and rent payments with £4,000 being owed on average. 70% of these people were also behind with council tax and utility bills.

The average amount of debt held by people accessing help from Money Wellness also increased during 2023, from £12,822 last February to £14,703 by November. This increase was predominately driven by a rise in catalogue or home-shop credit, which was used more frequently in the run-up to Christmas.

And 2023 also saw a changing debt demographic, with a growth in younger people (23–39-year-olds) seeking support. This age bracket had a high take up of BNPL, with some juggling more than 20 repayments at once and owing thousands in unregulated debt.

McCullough urges people not to struggle on unsupported: “Being in debt can be a lonely place. Many of those we speak to are at their wits end by the time they reach out to us and think their situation is hopeless. This is absolutely not the case.

“There’s free help available,” said McCullough. “So don’t bury your head and struggle on alone.”

If you find yourself in unmanageable debt, there are some steps you can take:

Step one – write down everything you owe

Be completely honest with yourself and leave nothing out, even if it doesn’t seem significant. Gather together all the paperwork you have, so you’re using the most up-to-date figures and have an accurate picture of your situation.  

Step two – order your debts in terms of importance

Some debts are more important than others - these are known as priority debts – as you could lose your home, have your energy supply cut off or lose essential goods if you don’t pay them. Priority debts include things like rent, mortgage repayments, gas, and electricity.

70% of the people Money Wellness help are behind with their priority debts, with council tax and utility arrears being the most common.

Non-priority debts include credit cards, unsecured loans and overdrafts, as well as water bill arrears and money owned to family and friends.

Step three – work out a budget

A budget can make you feel more in control of your finances. Calculate your net income and compare it to your outgoings. From here you can identify where you might be able to make savings. There are lots of different apps or online tools you can use to make working out a budget easier. You can use the Money Wellness one for free. 

It’s also worth checking to see if you’re claiming all the benefits available to you - £19 billion goes unclaimed each year. Your local council may be able to offer extra support, such as money towards energy and food bills, through the Household Support Fund.

Step four – speak to your creditors

It’s a good idea to speak to your creditors as soon as you realise you can’t afford to pay your bills. Creditors have a responsibility to support you and work with you to agree a more flexible payment arrangement. People are often surprised by how helpful their creditors can be – speaking to them about your financial situation is not something to be afraid of.

Step five – get free, independent advice

66% of the people we help live on a budget deficit each month – meaning they’re spending more than they have coming in - and a further 14% have less than £100 left over after covering their essential costs.

If, after completing a budget, reducing outgoings, and maximising income, you’re still struggling to pay bills or paying them with credit, relying on an overdraft or missing payments, then it could be time to access free debt help.