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Debt levels rising in run up to Christmas

Written by: Emma Lunn
Credit Kudos found that young people, freelancers, temporary workers and those employed in the gig economy are more likely to rely on higher cost credit options

Credit Kudos’ Borrowing Index November 2021 found that the number of people with debt in the UK has increased by 10 percentage points in just six months (64% to 74%).

It found that the number of ‘variable workers’ – freelancers, temporary workers and those employed in the gig economy or on zero hours contracts – with debts of between £5,000 and £10,000 has more than doubled from 2020 (10% to 23%).

The research found that the finances of variable workers and young people have been unduly impacted by the pandemic, with four in 10 (40%) 18 to 34-year-olds and almost half (47%) of variable workers saying they have had to borrow more than usual since the start of the pandemic. This compares to the national average of 21%.

The landscape is particularly concerning for variable workers, especially when it comes to levels of debt. In the first iteration of Credit Kudos’ Borrowing Index in early 2020, only one in 10 (10%) variable workers had debts of between £5,000 and £10,000. This figure has now more than doubled to about one in four (23%).

While these groups of society are clearly more in need of financial support to help them get by, they are also most likely to have to turn to higher cost borrowing options, for example unarranged overdrafts.

On average 24% of the UK population have used some form of higher-cost, short term credit, but variable workers are more than twice as likely to do so than the rest of the population, at 51%. The figure is also significantly higher among younger generations, at 35% for 18 to 24-year-olds and 30% among 25 to 34-year-olds.

Credit Kudos says the figures are “perhaps unsurprising”, given that 3.6 million, or 40% of 25 to 34-year-olds and about 850,000 variable workers have previously struggled to access mainstream credit.

This is an issue that has been exacerbated by Covid, with 78% of lenders saying they implemented a change in their lending policies during the pandemic, in part due to difficulty verifying borrowers’ income and a decision to avoid ‘higher risk’ customers during an uncertain period.

Freddy Kelly, CEO and co-founder at Credit Kudos, said: “The financial shockwaves of the pandemic will continue to reverberate for years to come, especially for those who were already financially underserved, such as young people and variable workers.

“For these groups, having access to affordable credit is essential, and it’s crucial that they are not forced to resort to high-cost short-term options that are likely to push them further into debt. New innovative solutions that lenders can use – such as Open Banking – can enable them to lend inclusively and responsibly to those who are most in need, as well as create tools to help borrowers better manage their money.”

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