The reality of debt and benefits revealed

Debt levels are higher among those claiming universal credit (UC) than those who get legacy benefits, new research from the Department of Work and Pensions (DWP) has revealed. 

Through a series of interviews and surveys, DWP looked at people’s financial situation to see how their debts affected their ability to manage their finances, as well as exploring the budget and debt advice and support available.   

Financial support from the government can be a lifeline if you’re unemployed, unable to work or on a low income. So, when you do run into money problems and debt mounts, it can be extremely stressful and distressing.  

According to the study, the average outstanding amount of debt owed by UC claimants is £4,754 with nearly one in five owing at least £10,000. 

Those who get legacy benefits owe £3,002 on average, with one in ten owing £10,000 or more. 

Causes of debt 

The key reason for debt was a sudden and drastic difference in income after a change in circumstances meaning claimants couldn’t manage existing financial commitments. 

Lifelong money troubles was another common cause of debt for many claimants. This often stemmed from becoming financially independent at a young age and not knowing enough about money to manage their finances. 

Another frequent cause was claimants  struggling to access the benefits that they were entitled to. Some felt that jobcentre staff didn’t know enough about helping them to claim support.  

Problems accessing benefits were made worse if participants had mental or physical health issues.  

Most common sources of debt 

The most common sources of debt for UC claimants include: 

• housing costs, council tax and utility bills  

• borrowing from informal sources like family or friends 

 
Those receiving legacy benefits generally have fewer sources of debt; they’re also less likely to owe money to five or more lenders than UC claimants.  

Managing finances 

The research found the average income levels of both UC and legacy benefit claimants in debt are notably lower than the national average.  

Most said they run out of money before their next payment so they’re  likely to borrow from family and friends, reduce their spending on essentials like food or energy, or delay  paying other bills. 

An overwhelming majority have borrowed money to pay for essential items. Paying for unexpected expenses and buying appliances are also common reasons for borrowing.  

The research also shows that claimants in debt wouldn’t be able to cope with an unexpected expense. At least three-quarters said they can’t afford to make regular savings of £10 per month, and around nine in ten or more would be unable to pay an unexpected expense of £200. 

Debt and mental health 

Being in debt affected participants’ mental health and wellbeing. Nearly everyone said they had experienced anxiety and stress while around seven in ten have felt embarrassment or loneliness. 

Claimants also identified problems related to finding work, believing that having a job could have a negative impact on their finances. They were worried about losing their benefits, especially those with health conditions affecting their ability to work. 

Support for managing money and budgeting  

A clear need for support was identified: most claimants agreed that advice about reducing debt and increasing income would be helpful in managing their money. Only a third of claimants in debt have asked for advice from an organisation like ours. 

Support from food banks was seen as the easiest to access, making it the most common type of help UC claimants accessed  

Moving onto universal credit 

By the end of the 2024/25 tax year, DWP plans to migrate everyone receiving legacy benefits onto UC.  

The six legacy benefits being phased out include:  

• tax credits 

• housing benefit 

• income support 

• jobseeker's allowance 

• income-related employment and support allowance 

If you receive tax credits, you only have six months to make the move to universal credit before the legacy benefit ends in April 2025. Anyone affected will be sent a ‘migration notice’ by DWP, who are urging people to respond so they continue to receive support. 

How to claim universal credit 

You can submit your universal credit claim in several ways: 

• online 

• by phone at 0800 169 0328 

• in person at your local jobcentre 

After you submit your claim, be prepared to wait five weeks for your initial payment. Once you start receiving it, you'll continue to do so unless your circumstances change. 

If you don’t make a claim by the deadline date on your letter, your tax credits will stop on the day before. 

If you need any support during the migration from legacy benefits to universal credit, don't hesitate to contact DWP. 

Support is available 

If you're in debt, reaching out for support could be the first step toward improving your financial situation. 

Worried you might be missing out on benefits? We can check you’re claiming everything you’re entitled to. So get in touch or try our benefits calculator.