The cost of living in the UK has increased tremendously over the past couple of years, with everything from car insurance to rent and energy prices now much more expensive than they used to be.
Many people are relying on debt consolidation and credit cards to help improve their credit rating to secure more borrowing, but are rising living costs the only reason for high debts?
Cost of living increased faster than average earnings
If you’re paying out more than you’re earning, the results are of course not going to be favourable. Even those with full-time jobs are struggling to stay in the black and this is largely because the cost of living has increased four times faster than the average earnings in the country, since the financial crisis of 2008.
While wages have risen slightly, extortionate living costs have been hard to keep up with and coupled with the fact that many employees have not received any raise at all in five years, the struggle has become very real for British citizens.
Unemployment can lead to extreme debt problems
As well as increased living costs, there are a wealth of other reasons why there are high debts in the UK, such as sickness or unemployment.
If one or more of a household’s earners cannot work or are forced to rely on benefits – or a low-skilled job with a much lower wage than they’re used to – this can greatly affect the family finances.
While some people fail to adjust to the new amount that’s coming in and therefore overspend, others borrow from lenders with high interest rates and end up landing themselves in greater trouble due to extortionate charges.
Sky-high interest rates can plunge families into debt
While some people are forced to borrow out of necessity, others do so to fund their lavish lifestyles and this in turn can lead to debt problems.
While taking out loans or applying for credit cards is not necessarily a bad thing – after all, they can help improve your credit score making it easier to get lower insurance premiums and to buy or rent properties – it’s crucial to do your homework before taking the plunge.
Why? Well because different lenders have different interest rates, so you must look for those who have low charges to keep your outgoings to a minimum.
Opting for the wrong kind of debt, such as payday loans – which are notorious for having interest rates through the roof – can leave you trapped in a cycle of failing to pay off the building interest, let alone the loan itself.
If you are struggling with debt, then consolidating what you owe and paying it off using a loan can be a much better idea than burying your head in the sand and pretending it’ll go away.
Divorce and separation also leads to debt in the UK
Personal problems, such as divorce or separation, also a lead cause of debt in the UK. As well as legal bills and the struggle to establish two separate families, there’s also the issue of facing life alone as single parents, which can be extremely challenging financially.
Splitting from a partner can have a catastrophic financial impact on families that were perhaps well off at one point but thankfully there are debt management companies and charities such as StepChange out there that can help stretch your budget.
So as you can see, the increased cost of living has certainly contributed to UK debt problems but is not the only reason people suffer financial difficulties.