Do these four things make you more likely to be in debt?

 

Many people who suddenly become “over-indebted” (in other words they can no longer cope with their debt, versus people with debt who are managing the repayments easily) do so after a life event which causes a shock to their income; perhaps a divorce or severe illness.  

 

Because of this, there is no ‘typical’ person who is most likely to get into financial difficulty. A wealthy middle-aged man may be unable to cope because he’s lost his job and he has outgoings that used to match his wage. A young woman in a junior role may be unable to pay back a large car loan after her partner left the home and is no longer helping financially.

 

However, just because there isn’t a one-size-fits-all approach to whom may fall into debt, there may be attributes which make you more likely to fall into this category. The Money Advice Service (the organisation created by the Government to help people manage their money more effectively) has released a report which tries to identify the top four characteristics of people who are struggling with debts. Do you fit into one of these groups? 

 

Renting vs owning

 

The price of renting is a hot topic at the moment, with many charities calling for regulation of rent costs. 25% of people who are categorised as over-indebted rent. Only 12% of homeowners can be categorised in the same way. 

 

Those in social housing, such as with a local authority or a housing association, are 8% more likely to be over-indebted than those privately renting.  However, as social housing is designed for those on low incomes, it is difficult to ascertain whether it is personal circumstances or housing status that is the causal factor.

 

Children

 

Children are wonderful, but no one can deny they’re expensive. Adults without children are only 13% likely to be over-indebted in comparison to 20% for those with children. The more children you have, the greater the likelihood of debt problems; rising to 26% for those with three or more offspring.  However it seems that single parents struggle the most, with 28% of single parent families being over-indebted. This obviously raises questions about what could be the underlying cause and reignites debate over childcare costs and the real value of wages. 

 

Income 

 

It seems obvious that the more you earn, the less likely you are to get into money difficulties, but it’s not proven. The report only showed a link between those households that earned less than £10,000 per year and high levels of problem debt. Households earning over this amount, whether that’s £20,000 per year or £80,000 per year, all had the same chance of having problem debt. 

 

Age

 

Those aged 25-34 are four times more likely to be in debt than those over 65. Interestingly, the report suggests that while this age group are most likely to be missing payments, they’re not too worried about it, being the least likely to describe their debts as “a heavy burden”. 

 

As those in their late twenties and early thirties are more likely to be establishing careers, trying to get on the property ladder and having children, looking at the other likely causes for indebtedness already mentioned it is perhaps not surprising that this age bracket is struggling the most.

 

There are 8.2million people in the UK who are struggling with problem debt, yet only 17% of those people are seeking debt advice. Many wait until they have run out of options, perhaps being unable to get any more credit or being chased by creditors.