According to Barclays, consumers have developed money-saving shopping habits to stave off problem debt as the cost of living has skyrocketed.
People have cut back on non-essential spending on things like clothing and eating out, data from UK debit and credit card transactions suggests.
But those on low incomes who are already under financial pressure often face problems like arrears on utility bills.
Counselors say some are too scared to open letters for fear of claims inside.
Dame Clare Moriarty, chief executive of Citizens Advice, said that for these people “the cost of living crisis is turning into a debt crisis”.
Two broad camps have formed among consumers as prices and bills have soared over the winter, despite the fact that everyone’s financial situation is different.
Banks say millions of people have built up a savings buffer and kept their jobs during the Covid lockdown, which has helped deal with the rising cost of living. They have also cut various elements of spending to improve their situation.
The second group does not have that luxury and, while they may be working, may already be in financial difficulties.
Citizens Advice said that in January more customers than ever needed food bank referrals and charity support.
For those with some savings and higher incomes, changing habits has helped keep debt low. Banks say arrears on loans and credit cards have remained relatively stable.
“The majority of our customer base is showing a healthy level of financial resilience,” Barclays CEO Matt Hammerstein said ahead of further data from banking trade organization UK Finance later on Thursday.
“Those fortunate enough to have built up a buffer have been more comfortable coping with the rising cost of living, and many have made reasonable lifestyle adjustments to stay ahead.”
These customizations include:
- The majority of people reduce discretionary card spending on things like clothing and home improvement
- Individuals looking for discounts on entertainment
- The increasing popularity of dupes, which are cheaper alternatives to popular products
Barclays said its data covered around half of UK debit and credit card transactions, but comparisons to a year ago were marred by a post-Omicron surge in some sectors 12 months ago.
Spending on essentials has been rising at a faster rate, but data suggests a significant proportion of shoppers are looking for cheap and inexpensive groceries, and are shopping in a variety of supermarkets to make the most of what’s on offer.
Rising food and energy costs are having a significant impact on the finances of a number of low-income families.
Some of them will use a prepaid meter for their gas and electricity. According to Citizens Advice, the number of customers who couldn’t afford to top up their prepaid meter in January was the highest month on record.
The number of customers struggling with debt to their utility has increased, and the typical size of that debt has increased sharply.
Those on the frontline for advice said problems with electricity bills had become more common.
Debt Free Advice, a partnership of 16 charities, toured London over the winter with advisors providing impromptu advice from a bus funded by the Mayor of London.
On one of those trips, Retee – one of the money coaches – told the BBC that many people needed reassurance that they weren’t alone in difficult circumstances.
“I always see our customers as very courageous people. It takes a lot of courage to say you need help. Some are shy or ashamed,” she said.
“Some people are in a bad situation. They have sleepless nights. They can’t really cope and they don’t know how to get out of the situation they are in.
“They decide whether they heat their house or go out to dinner with their children.”
She said some people have come in with unopened letters because they are “afraid of what’s in those letters”.
Retee, who switched from working in hospitality to money advice during the lockdown, had conducted assessments and then referred people to specialist advice.
- talk to someone You are not alone and there is help. A trained debt counselor can explain the options to you. Here are some organizations you can get in touch with.
- take control Citizens Advice suggests that you find out how much you owe, to whom, what debts you owe most, and how much you have to pay each month.
- Ask for a payment plan. For example, utilities must give you a chance to pay off your debt before taking action to recover the money
- Check if you get the right money. Use the independent MoneyHelper website or performance calculators operated by Policy in Practice and the charities Entitledto and Turn2us
- Please take a breather. If you are receiving debt advice in England and Wales you can request a break to protect yourself from further interest and charges for up to 60 days.
Tackling together: More tips on dealing with debt
Matt Dronfield, managing director of Debt Free Advice, said the advisors speak 33 languages among themselves and often help people negotiate with creditors and apply for grants and benefits.
About 60% of those helped are women, he said, and there is a special focus on people of ethnic background.
Traditionally, debt carries a stigma, he said, and some people are more likely to discuss money matters with their pet than with their partner.
“Talking to someone is the first step. We’re showing that someone is on their side, maybe for the first time, so they can start seeing a future,” he said.
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