IIt’s important to worry about the right things. Interest rates are rising, creating concerns about debt, in my case a mortgage. Consumer debt (credit cards, overdrafts, personal loans) is said to be rapidly increasing. But the truth is that consumer debt levels are falling.new Resolution Foundation Research This is the lowest level since at least 1999, and has fallen from 23% of household disposable income in the mid-2000s to 13% today.
Since the pandemic began, there have been two phases. People were unable to spend during the lockdown and between December 2019 and March 2021 they paid off £26bn of debt. Debt has been rising again recently, but not as fast as income. Lenders are tightening access to loans, and rising inflation could also help those in debt “inflate” parts of their debt.
This change is significant. If 2019 debt levels remained in place, this would be an increase of £1,700 per household. As a result, even after interest rates rose, British households are spending less on consumer debt repayments than before the pandemic.
Is it all good news? No, debt didn’t just decrease, it changed. Low-income households are more likely to default on priority bills such as rent, utilities, and council tax than they are on credit card debt. Energy bill arrears are the highest since records began in 2012. People who seek help from Citizens Advice have on average reduced their credit card debt by £1,000, but their bill arrears have increased by more than £500 since coronavirus. This has its advantages. You won’t be charged interest if you’re late on your bill, like you would with a credit card. But the risks are high. Unpaid bills can lead to eviction or power outage. The debt we owe is changing and politicians and policymakers need to keep up.
