Low to middle earners increasingly exposed to debt

A survey released this week by Ipsos Mori has revealed further evidence of the financial pressure facing millions of people around the UK. Such pressures are adding to the need for some households to use credit in order to cover basics and essentials; a recipe for future debt distress and the use of serious debt resolution measures such as a trust deed. In particular, low to middle income earners are threatened financially at the current time.

The Ipsos Mori definition of a low to middle income earning household is one in which total gross incomes are between £12000 and £48000 each year. Around the UK there are believed to be in excess of ten million workers who fit into this category.

This is the group of people in the UK that is most feeling the effect of “the squeeze” according to growing evidence. In particular they are finding that their stagnated incomes are increaingly being consumed by inflated prices for goods and services that aren’t discretionary. According to Ipsos Mori just over half of this group doesn’t have any money left at each month-end though this figure will include many people that have actually spent more than they earned. Only 27% of people in this income category report that they’re being able to save money meaning that few people are building up a safety-net to protect themselves if something were to go wrong.

What can we learn from these statistics? Only around 40% of people currently believe that their jobs are secure so most people would be saving if only they could. Around three quarters of people aren’t saving anything though and this would appear to be the case because they just cannot afford to. 

This situation would be worrying enough without factoring in the average level of personal debt in Scotland is once again on the rise. Higher personal debts will lead to higher monthly debt repayments which will mean that fewer people will have any money left at the end of each month and therefore be able to save; a vicious circle. It will also mean that many more people find that they’re spending more each month than they have coming in due to increased debt repayments. This is a very dangerous tipping point; the point at which debts can escalate out of control without careful management.

The risk however is that people do not appreciate that they have reached this tipping point. When finances and debt repayments become a struggle the focus is often on moving debt balances around and juggling to keep up with the payments. This focus takes attention away from the underlying issue which is that, in reality, the debt repayments have become unaffordable. 

A very basic step can serve as an important early-warning system. Drawing up a budget is a simple step that most of us never do. It’s fairly simple, in one column write down all the income that’s coming in and in another column write down all the things you have to spend money on. This should include setting aside money for things you don’t have to pay for every week or month such as clothes, getting your car serviced, car tax and so on.

If it doesn’t add up? The first step is to try and make savings if and where possible. Another option is to look for opportunities to increase income if that can be arranged.

If you still have more expenditure than income? Those that provide debt advice and trust deed advice are sometimes concerned that their clients have left it late to seek advice. Taking early debt advice can often result in avoiding the need for debt solutions altogether thanks to some restructuring or budgeting. Even where that isn’t possible less serious debt solutions such as the Debt Arrangement Scheme or a debt management plan may be suitable at an early stage. Where a client seeks advice later their debts have often escalated; solutions are still available but will more frequently turn towards formal insolvency procedures such as bankruptcy or a trust deed.

Reaching out for debt or trust deed advice from a stranger is not an appealing prospect, which may explain why so many people leave it until late in the day to do so. However a good debt or trust deed adviser is much more likely to find you a less onerous type of debt solution if you contact them at the earliest point possible.