Rising energy prices trigger debt crisis as one in five people take out credit to cover costs

Rising energy prices trigger debt crisis as one in five people take out credit to cover costs

The UK energy crisis has prompted one in five people (20%) to rely on credit cards, loans and overdrafts to manage rising costs over the past three months.

The vast majority of people (78%) said they had experienced price rises since the start of the year, leading households to rack up £4.7bn in debt, according to smart money platform, Credit Karma .

Since the start of 2021, households in the UK have seen price increases of around 23% on average. Unable to avoid rising costs, more than a quarter (26%) fear they will no longer be able to pay their bills, despite consumption remaining constant.

In an attempt to counter soaring energy prices, 40% have reduced their consumption, going without heating or switching off electronic devices, while others have been forced to dip into their savings to join the two ends.

According to the study, 25% of respondents said that rising energy and gas costs, coupled with falling incomes, made them lose the price of their basic necessities.

For some, the situation is so bad that they have had to move in with relatives or share their house with more people to reduce the cost of bills.

Others even had to undertake additional work to get by.

However, the issue of rising energy prices is far from resolved and could lead to a debt crisis for millions of people, as the vast majority (79%) of those who borrowed money to counter the rising cost of bills fear not to do so. to be able to meet refunds.

Commenting on the findings, Akansha Nath, Head of Partnerships at Credit Karma, said: “Currently, high wholesale costs prevent energy providers from offering competitive tariffs, limit consumer choice and take away the incentive to change.

“As a result, turning to credit to make ends meet has become essential for many. While much of this is beyond customers’ control, there are things they can do to ease their financial stress. »

Four ways to manage your finances during the energy crisis

Akansha shares four tips to help people through the cost of living crisis.

1. “Since the majority of flat rates aren’t cheaper right now, staying on your existing rate might be your best bet to maintain the lowest rate available,” Akansha said.

2. Akansha said: ‘There are many schemes you can use to get help with your energy bills, including the UK government’s relief scheme providing up to £350 in cash per household.’

This is the £200 energy credit ‘loan‘ which will be applied to every UK household’s electricity bill in October and will be paid back at £40 a year from April 2023.

The £150 council tax rebate will be applied to every household in bands A to D, as well as every household in Scotland that currently receives a discount. The money will be paid directly into your bank account if you pay your council tax by direct debit, otherwise it will be applied to your council tax account 2022/23.

You can read more about it here.

3. Akansha advises anyone concerned about paying their energy bills to contact their supplier as soon as possible to find out if there are any options available to you.

4. “If you need to use credit to fill the gap, make sure you get the best rate and don’t take more than you can reasonably afford to repay,” Akansha suggested.

To keep up to date with the cost of living crisis, join our Money Saving Scotland Facebook group here, follow Record Money on Twitter hereor subscribe to our bi-weekly newsletter here.

Robert P. Matthews