Henry's Blog: Why a debt time-bomb is about to go off

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Very shortly there’s going to be a massive rise in the number of people facing personal financial tragedy. This ticking time bomb is getting ever closer to exploding.  It appears that the most ‘imperfect’ storm is brewing and likely to hit land this autumn.

We know many people are only managing to cover their outgoings by borrowing on their credit cards but soon they will reach their limit and they won’t be able to afford the repayments. (According to debt charity StepChange, 67% of their new clients had credit card debt[1].) At worst, their credit card debt could mean their home is repossessed, if their card is secured to a property.

Other people have only been getting by through Covid-related government support – it’s been an incredible lifeline to many, many people over the last year and a half. But in some respects, it’s only masked a growing problem or effectively ‘kicked the can down the road’.

Now, with the pandemic loosening its grip on everyday life, those government interventions have started to be withdrawn, for example: 

  • Evictions had been put on hold, but as of 31st May, they restarted.  However, this is likely to take at least 2-3 months to really kick-in because of court delays and the statutory notice period.  Therefore – September/October!
  • This happens to coincide with the ending of furlough (30th September) when it is possible that jobs will no longer be available.  Add to mix that the 12 month ‘borrow now, pay later’ ‘bounce-back loans’ are kicking in, some businesses will unfortunately not survive!
  • The end of September also sees the ending of the Universal Credit top-up.  The additional £20 per week is a lifeline to many low income families.  That’s a reduction of £86 per month – for many that is most of the shopping bill!

In short, many people have seen their incomes reduced due to the pandemic, are already sitting on a ton of debt and are running out of options. That combined with the withdrawal of government safety net of support is what will drive this next wave of debt.

As Jo Goodhall our most senior debt advisor says “The accumulative financial pressure over the last 18 months of lower income is driving people into debt.  It’s not that people are overspending, it’s just the sustained low income that’s really beginning to bite.  Quite simply, there’s just no flex left!”

Debt makes you fearful – fearful to answer the door, open letters, answer the phone. You feel useless, a failure - you look at others and compare yourself and you feel such a failure. Above all, debt overwhelms you with a sense of hopelessness and a real belief that things will never get any better.

Already, more and more families are coming to us for help and the numbers are just going to keep climbing. We want to do all we can to help free each and every family from debt, for good.

Will you help us to help them?

Click here to donate now and defuse a debt 

If you already give a regular gift to REACH, we’re extremely grateful to you, as are the families that we support – read how you helped Josie when she and her children fled abuse.

In my next blog, I’ll explain why and how debt leads to the threat of homelessness.