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How High Cost Credit Affects Financially Unstable Families

Personal_Finance / Credit Cards & Scoring Mar 08, 2019 - 04:50 PM GMT

By: Submissions

Personal_Finance

Over the year, 29% of adults in the UK have been experiencing such major events in life as illness, separation from their partner and having children, with more than half of these having to deal with unexpected expenses. In addition to this, the overall shifts in society is meaning that work is becoming gradually less secure, with an astounding 4.5 million people on zero-hour contracts and 13% of adults in the UK claiming to have an income that varies considerably from one month to the next.


This growing insecurity in work and subsequent monthly fluctuation in wages has left many families trapped when hit with a hefty and unexpected bill. A fifth of UK households are claimed to spend a minimum 60% of income on essentials, leaving little to no room to manage such unexpected bills that can unfortunately be a common, natural part of adult life.

In 2017 a shocking 1 in 5 people (21%) that had unstable incomes had to go without essentials, including food, simply to pay for household bills. Therefore, those who have fallen victim to this category of financial instability have had no choice but to turn to loans, with over a quarter of this group using their overdraft and having to pay its usage fees.

With a mixture of a low credit rating, the increasingly insecure working environment and financially volatile household, people are turning to high-cost short-term (HCST) loans simply to make ends meet; starting their decent into a crippling, and often unpayable amount of financial debt.

Therefore, with no other options, low-income households with low credit ratings have therefore been turning to high-cost loans, simply to survive. These loans have left families who are already financially struggling with severe debt, with rent-to-own loans requiring 400% of the original value of the credit taken out, and those using doorstep loans having collected a median debt of £2,800 in 2018.

Fixing the financial crisis seen in so many of the UK’s households is not an easy task, and so involves focus on untangling numerous different factors that led to such issues in the first place. However, saying this, there are some more straight forward changes that can be made more immediately to ensure the nature of these loans does not drown financially unstable families into debt they cannot manage.

Whilst this does not entirely solve the issue of high-cost short-term credit loans, since the introduction and further integration of the cap on the total cost of payday loans within the UK, the results for those with unmanageable high-cost short-term loan debt has gone down by more than half. With an increase in measures put into place such as this cap on high-cost short-term loans, the UK could prevent these types of loans from doing such considerable damage to already financially unstable families, leading to less overall excessive indebtedness across the country and a better quality of life for the families involved.

If you are experiencing similar difficulties, speak to MoneyAdviceService or Citizens Advice Bureau for help.

By Daniel Tannenbaum

Copyright 2019 © Daniel Tannenbaum - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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