A leading debt charity has warned of that a personal debt tsunami of £6 billion directly attributable to the pandemic is already being stored up among some 4.6 million households and, if left unchecked, is set to worsen.
Stepchange are warning that coronavirus-related debt will act as a drag on economic recovery and will deluge advice services once the reality of people’s situations begins to hit home in the coming months.
Debt charities are gearing up for a doubling in demand for debt advice by the end of the year.
On the basis of research by YouGov , they estimate that each affected adult has accumulated an additional £1,076 of arrears and £997 of debt.
These figures reflect the situation as of late May and are likely to increase substantially before the lockdown is fully phased out.
Since the beginning of the coronavirus lockdown period, the charity estimate 1.2 million people have fallen behind on their utility bills, 820,000 people on their council tax, and 590,000 on their rent.
Meanwhile, 4.2 million people have borrowed to make ends meet, most often using a credit card (1.7 million), an overdraft (1.6 million) or a high cost credit product (980,000).
Other common financial coping strategies include using savings, asking family and friends for help, applying for Universal Credit, and selling possessions.
While 70% of those affected were not in financial difficulty before lockdown, the minority of households who were already struggling before the pandemic have seen their finances hit disproportionately hard.
Of those in severe problem debt before the outbreak, 45% have been negatively affected financially by coronavirus. This compares to 25% of those not in financial difficulty.
Without mitigation, the situation for both groups will get even worse once job support and temporary forbearance measures are withdrawn they say
However, it is within the Government’s gift to mitigate some of the worst effects, and to smooth the bumpy road that lies ahead for many households’ finances.
CEO Phil Andrew said:
“We were already dealing with a debt crisis, but Covid has so far added another four million people and counting to the number who are gong to need help finding their way back to financial health. With £6 billion of additional household debt directly attributable to the effects of the pandemic, this is a problem that isn’t going to solve itself.
“Cost might be seen as a barrier to the recommendations we outline. However, the costs of not intervening would ultimately be higher. The misery, damage and economic drag that will inevitably follow the pandemic can and should be mitigated through public policy, and the approaches we suggest are the biggest game-changers.
“As a charity, we have our own part to play. Like other debt charities, we are gearing up for a significant increase in demand for our usual services.
“We are also working on a specific solution to help people whose finances have been hit by the pandemic and who need a short term helping hand to get back on track without jeopardising their credit status.
“The false calm in which we find ourselves while furlough and forbearance take the strain will not last indefinitely. We will be ready to help as more people find their debt problems crystallising over the coming months.”