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Least well-off most exposed to debt, think tank finds

Low-income households have recorded a sharp rise in the use of high-interest consumer credit products over the past decade, research from the Resolution Foundation has found.

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The think tank found that a decade of falling interest rates has not seen corresponding falls in low-income households’ exposure to debt.


The proportion of low-income households using some form of consumer debt rose by nine percent between 2006-08 and 2016-19 – a far steeper rise than the one percent rise to 64 percent among high-income households.


This increasing use of consumer debt has been concentrated in products with high interest rates that have not got cheaper over the past decade, unlike mortgage debt, which low-income households are less likely to have taken on.


Credit card use – with an average-quoted interest rate today of 20 per cent, up from 15 per cent in 2008 – among low-income households grew by 13 percent between 2006-08 and 2016-19. The use of overdrafts, which have an average quoted interest rate of 15-20 percent, grew by four percent.


The research also found that more than half (53 per cent) of low-income households with consumer debt reported difficulties in meeting accommodation costs in 2016-19, up from one-in-three households in 2006-08.


Paul Went, managing director for Shawbrook’s Consumer Division, said: “The main reason that many low-income families fall into extreme indebtedness is mainly due to not being fully aware of what they’re getting into.


“If lenders, and particularly credit card providers, were more upfront and transparent in relation to their propositions, then maybe those within low-income households would be able to properly assess these offerings before applying for a product and then subsequently entering into an agreement with an absurdly high APR.


“The report from the Resolution Foundation highlights the need for lenders to take more responsibility regarding educating consumers, helping them make the correct decisions before jumping in on a deal that fundamentally may not be right for them or their situation.”

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