New Year, existing debt?

Over one fifth of UK consumers (22%) say they feel most financially under pressure in January.

The average amount of debt people consider to be unmanageable is £8,854, almost a third (30%) of the average UK salary. Men feel more comfortable with a higher level of borrowings, on average stating £9,996 as manageable compared to £7,661 for women.

People in the South East believe they can handle the largest amount of personal debt at £10,662.

Credit cards are the type of debt people are most concerned about (cited by 20% of respondents), followed by utility bills (11%) and mortgage repayments (9%).

Richard Haymes, head of financial difficulties at TDX Group, an Equifax company, said: “Year after year, spending pressures over the seasonal period push many to exceed their financial limits. Record high levels of personal debt in 2018, combined with so many people saying they find debt unmanageable, make this particularly concerning.

“Nonetheless, positive trends are developing. The increasing regulatory focus on expanding awareness and access to debt advice, such as the government consultations on Statutory Debt Repayment Plans and breathing space for people in debt, should help break down the social stigma around financial difficulties and enable more people to access the help they need. This will play a key role in addressing society’s debt problems in the year ahead.”

No pay-back until mid-May 2019

The slide into personal debt is so bad for some UK workers that they will only pay off their Christmas debts well into the middle of May this year.

The research, commissioned by financial well-being experts Wagestream, revealed the extent of financial stress that hits the workforce over the holiday period – lasting well into the New Year, with a costly Christmas exacerbated by the extended pay cycle between December and January.

Workers expect to start the year with an average of £252.30 debt left over from the festive period, with people in Leeds racking up the most debt (£307) and people in Plymouth the least (£143).

Shift workers again suffer most, expecting to put an extra £100 on top of the national average onto credit. This makes Christmas a lucrative time of year for predatory, high-interest credit providers, meaning that many people start the year with a debt which will only increase with time.

“The data makes clear that staff want more certainty and more financial flexibility from their employers,” says Peter Briffett, CEO and co-founder of Wagestream.

“This is a huge opportunity for British businesses: taking a proactive role in improving financial literacy, and extending the types of benefits and flexibility workers really want, will transform our productivity as an economy and make work, work better for Brits.”

Erik Porter, head of adult & industry programmes at The Money Charity, adds: “Being on top of your money means you are more in control of your life; it has a huge impact on your day-to-day well-being, including productivity at work. It’s concerning to see such anxiety over the cost of Christmas lasting well into the New Year – especially with vulnerable employees hardest hit. But these findings offer businesses a valuable chance to better understand their workforce, and begin offering the types of flexibility and benefits that will really help the British workforce better manage their money over the festive period.”

So what can a financial adviser do if their client is struggling?

There are many steps a financial adviser can take when it comes to helping their clients manage debt.

Martin Bamford, chartered financial planner and managing director at Informed Choice says: “It’s shocking that the social pressure and expectations surrounding Christmas can force people into debt which takes nearly half the year to pay off.

“A good starting point would be to budget ahead for the cost of Christmas, perhaps experiencing a more frugal Christmas this year so they have the opportunity to catch up. Friends and family will understand why you’re doing this and you can manage expectations accordingly.

“Regular saving towards the cost of Christmas can help people stay out of debt. One aspect of a comprehensive Financial Plan is your expenditure budget, allowing you to allocate your disposable income towards immediate and future financial needs.

“If you’re getting into debt to finance the cost of Christmas, you’re living outside of your means or failing to plan ahead. Christmas comes around at the same time each and every year, so there’s nothing surprising about its timing and no excuse to avoid planning for its cost.”

Sabuhi Gard is an investment writer at Incisive Works

Further reading on this topic:

£96bn of debt is hidden by adults says Money Advice Service