Households’ route out of coronavirus-related debt problems ‘is not yet clear’

Many households do not yet have a clear route out of debt problems triggered by the coronavirus pandemic, a charity has warned.

With temporary support available, many people adopted a “wait and hope” strategy to financial difficulties last year, according to StepChange Debt Charity.

It said the impact of coronavirus was the fifth most common reason for debt in 2020.

Emergency support measures such as loan payment holidays and the furlough scheme have provided a cushion for households against the financial impacts of the pandemic.

But StepChange, which released the findings in its 2020 statistics yearbook, warned that significant pent-up demand for debt advice will be unleashed as the temporary support unwinds.

StepChange also noted a significant shift last year in the backgrounds of clients seeking help.

The proportion who were single without children rose from 36% in 2019 to 44% in 2020.

Women and single parents remained over-represented, in line with previous years – 60% of clients were women, and while just 6% of the UK population were single parents, they made up 22% of StepChange clients.

For the first time since 2016, the average non-mortgage debt per client fell in 2020, with a typical figure of £12,644, down from £14,129 in 2019.

StepChange said the reduction is likely to be a reflection of the different backgrounds of clients coming forward.

An increased proportion of clients made contact by phone last year, at 49%. These clients tend to have lower incomes, lower outgoings and lower overall debt levels than those who get advice online, StepChange said.

Around 200,000 clients went through full debt advice with StepChange in 2020, compared with more than 300,000 in 2019.

The charity described the fall as temporary and said emergency support measures mean millions of households have had their debt problems “kicked down the road”.

Problems are set to crystallise as forbearance becomes less generous or is withdrawn, it added.

StepChange Debt Charity chief executive Phil Andrew said: “We all know what an unusual year 2020 was, and client statistics reinforce that.

“Despite problem debt increasing, and our website running red hot as a huge influx of people sought information, we actually took fewer clients through full debt advice as many adopted a ‘wait and hope’ approach to their latent financial difficulties, utilising emergency support.

“Looking ahead, the route out of Covid-induced debt for many households is not yet clear. We are seeking to work urgently with other stakeholders to chart a safe passage for as many households as possible.”

– The top five reasons for debts in 2020, according to StepChange Debt Charity:

1. Unemployment or redundancy
2. Reduced income or benefits
3. Lack of control over finances
4. Injury or health issue
5. Covid-19