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£100 drop in monthly income can drive households into debt

18 November 2015

One in three people would have to stop paying essential bills, borrow from family or would fall into debt to deal with a £100 drop in their monthly income, reveal new figures from Citizens Advice.

The ‘financial security’ study shows that a monthly loss of £100 is enough to undermine the stability of household finances.  It also highlights that people would struggle to increase their income due to caring commitments, or their employer not being able to offer more hours or more pay.  Those who believe they can increase their income say it could take up to a year to make this happen.

Four out of five (82 per cent) people with an income of between £15,999 and £29,999 said it would be difficult or very difficult to cope with this reduction, compared to almost half of those on an annual income of over £30,000 (47 per cent).

The findings come a week ahead of the Autumn Statement and Spending Review and as the Government considers changes to tax credits which, as the plans stand, would leave many affected households worse off by £100 a month.

Each year Citizens Advice helps with 1.5 million debt problems.  In the last 18 months there has been a notable shift in the types of debt problems people are seeking the charity’s help with as more and more people struggle to pay bills and rent.

Of the third of people who said they would borrow money or fall into debt as a result of the loss of income:

  • Half would borrow money from family or friends

  • 45 per cent would skip or delay payments on essential bills

  • 41 per cent would use an overdraft

  • 31 per cent would use a credit or store card.

Reducing spending was a popular approach among the 500 respondents to the online survey with 77 per cent saying that they would make cut backs to absorb the change in their finances.

However, working extra hours or gaining a pay rise was less of an option for people, with just 1 in 4 (28 per cent) believing they would be able to do this.

Of those who said they couldn’t increase their income, one in four said caring commitments, for example childcare responsibilities or looking after a relative, meant they wouldn’t be able to increase their working hours.

While a quarter thought their employer couldn’t offer them higher pay or more hours.

Two in five people (43 per cent) felt that even if they were able to increase their income, it would take them months, with one quarter thinking they’d need more than a year.

Gillian Guy, Chief Executive of Citizens Advice said:

“Being £100 a month worse off can significantly affect people’s financial security.

“For too many people the only option to cope with a drop in income is to borrow money or go into debt on their essential bills.  Childcare responsibilities can mean people are unable to take on any more work to fill the gaps, and where people are able to increase their income it can take up to a year to do so.

“People on tax credits are facing the prospect of a £100 drop in income.  Ministers need to look carefully at their plans to change tax credits to ensure people aren’t driven into debt, have plenty of time to plan their finances and are given help to achieve a financially secure position.”

Data from Citizens Advice shows products like credit cards previously caused the most debt issues but it is now household bills which are at the heart of people’s financial troubles.

There were 197,000 council tax debt problems reported to Citizens Advice between July 2014 and June 2015, making it the most common debt problem. There  has also been an increase in rent arrears to private landlords.

The charity’s ‘Consumer Challenges’ published earlier this year found those on higher incomes tend to have a greater amount of debt.  However it also reported that it is much more difficult for people on lower incomes to get themselves out of debt - meaning they often end up deeper in the red.

Notes to editors

  1. Between the 29 October and the 4 November 505 people answered an online survey about dealing with changes in income. The respondents came from across the income distribution and represented all types of households.

  2. The Citizens Advice service comprises a network of local Citizens Advice, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.

  3. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.

  4. To find your local Citizens Advice in England and Wales or to get advice online, visit citizensadvice.org.uk.

  5. You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers.

  6. Local Citizens Advice in England and Wales advised 2.5 million clients on 6.2 million problems in 2014/15. For full 2013/2014 service statistics see our quarterly publication Advice trends.

  7. Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 2,500 service outlets across England and Wales.