Household debt: A UK national crisis

young couple looking stressed as looking at a laptop and bills

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The UK is, at present, a nation gripped by economic crisis. Even though recession conditions are a thing of the recent past, the long-term impacts of major national events continue to impact millions of businesses and millions more households.

From the coronavirus pandemic to energy price spikes and the cost-of-living crisis, financial stressors have continued to mount – with one result being the increasing of national household debt above £2 trillion for the first time in history. What does this mean for the nation and for individuals, and how did we get here?

The Scope of Household Debt

The £2 trillion national household debt figure comes from data accumulated in 2023, and points to an average household debt of £71,000 – double the mean average annual pre-tax salary of £35,464 in the UK. This is an immense amount of money, almost equivalent to the UK’s annual GDP. Not only that, but it is continuing to grow.

There are many factors impacting the accumulation of household debt, which will be unpacking shortly. However, one factor relates to the nation’s knowledge of finances and debt, and is represented in some damning statistics. Around two-fifths of the UK’s adult population need, or are at risk of needing, debt advice from a professional or a reputable source, indicating both a dire stratification of social classes and a dearth of financial education or literacy in the country.

Factors Impacting Debt Accumulation

Failures of financial education do not occur in a vacuum, though – and the results seen today were not inevitable. Rather, they were the result of cascading economic events which tested the average family’s financial readiness, and set the stage for a slow national recovery.

The pandemic is an obvious candidate, having decimated profits and jobs as well as isolated family members, but the ensuing cost-of-living crisis has claimed more victims. Barriers to trade, caused by Brexit and instability in Eastern Europe, have resulted in increased costs relating to the purchase and transport of energy, raw materials and products; these costs have been passed on to the consumer, with cost inflation trumping wage inflation decisively.

Managing Debt

Managing debt on an individual basis is simple in theory, but complex in practice. Where the debt takes the form of multiple loans or overdrafts, debt consolidation loans are useful financial tools for localising the debts before they separately spiral out of control. Financial products are often the cause of financial distress, but – in ways like this – can also be a solution.

In order to successfully utilise debt to clear debt, a household needs to have a comprehensive understanding of their financial situation, and to create an equitable plan with which to move forward. There are free advice services which can be used to gain a better understanding of where to start, but the basic principles are the tracking of expenses, the maximisation of income against outgoings to more swiftly pay debts, and an emergency fund to cover unexpected costs.

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