Pandemic Has Created a Wealth Divide With £5.7 Billion Debt Racked up Since March 2020
The divide between rich and poor is widening, as many UK adults have grown their savings during the COVID-19 pandemic, while others are struggling to make ends meet.
New research from TransUnion – one of the UK’s leading credit reference agencies – reveals the pandemic has given over a third (35%) of UK adults the chance to increase their savings and 16% have reset their finances. Yet, at the same time, 14 million people have accumulated an average debt of nearly £400 each, totalling £5.7 billion debt since the first lockdown.i
The findings show one in four adults (25%) feel uncomfortable with their current amount of debt – which has more than doubled as a result of the ongoing health crisisii – and one in 10 say their finances won’t recover until at least 2022.
Triggers for this debt include people using credit to supplement income as furlough has left them short (6%), and parents unable to work because of childcare commitments (4%).
At the same time, one in three UK consumers (35%) have increased their savings during lockdown. This is likely down to them being more frugal when it comes to spending (26%) and limiting bigger purchases (16%).
Kelli Fielding, TransUnion’s managing director of consumer interactive in the UK said: “Our researchiii tracking the ongoing financial impact of the COVID-19 pandemic on UK consumers gives a polarised view. On the one hand, over half those surveyed are feeling positive about the future (54%), but at the same time, four in 10 say their household income is being negatively impacted (38%). Almost one in 10 (9%) have been using credit to supplement their living expenses and that’s a big factor in the amount of debt that’s been accumulated during the pandemic.”
There is evidence, however, of better financial understanding – with one in three UK consumers saying the pandemic has made them more aware of their spending (33%) – and half (50%) monitoring their credit score at least monthly, up from a third (33%)iv at the start of May 2020.
Kelli Fielding adds: “It’s great to see that over half of consumers (51%) think their credit score has either stayed the same or improved over the course of the pandemic but it’s a concern that a quarter have never checked it. Being familiar with your credit profile is essential when it comes to managing your financial standing and understanding what your options are in terms of accessing finance and managing your debt.”
How to manage debt during the pandemic
- Get independent advice: Consult a debt charity such as StepChange or National Debtline for free, confidential support on debt and how to manage it.
- Talk to your finance provider: It’s important to let your lender know if you’re at risk of missing payments, or if you think you’re going to struggle when agreed payment holidays come to an end. They can look at the most suitable repayment plan for your needs.
- Prioritise your payments: Keeping money management in order will help you avoid getting into further debt. Pay your mortgage or rent and other key bills first, followed by higher interest debt such as store cards.
- Pay your bills on time: Getting your payments in on time, or ideally early, will help you to maintain your credit score. Missed or late payments are recorded and could make it more difficult for you to borrow in future.
- Check your credit report and score: Checking your credit report and score regularly is an essential part of monitoring and managing your finances. To check your TransUnion credit score and report for free visit Credit Karma, MoneySuperMarket, or TotallyMoney
Unless otherwise stated, figures relate to survey of 2,000 nationally representative adults (18+) carried out by OnePoll on behalf of TransUnion in March 2021
i 27% of UK consumers have accumulated some level of debt in the past 12 months, at an average of £399.20. According to latest ONS figures, the current UK adult population is 52,673,433, which means 14,221,827 consumers have collectively accumulated a sum of £5,677,353,338
ii According to the research, UK consumers have a total of £841.70 of debt on average, which had increased by £399.20 in the past 12 months
iii TransUnion’s Consumer Pulse research (formerly the Financial Hardship Study) commenced in March 2020. Based on data collected 5 - 9 March 2021 from 1,100 UK consumers on behalf of TransUnion
iv Based on a survey of 1,007 adults in the UK, conducted 4 – 5 May 2020 on behalf of TransUnion