What's Causing The Rise In Middle-Class Debt? |
Posted: July 5, 2018 |
Recent reports indicate that debt advice charities and agencies are now being inundated with requests for help from a new type of customer. Today, it’s the middle class, middle income family that is struggling with debt. But what has caused this increase in debt across the middle classes?
Cheap credit
For over a decade now credit has been cheaply available and for many people that has been too hard to resist. Those on middle incomes with good credit scores now find themselves with credit cards, personal loans and payday loans – on top of mortgages – that were willingly provided by lenders when credit was cheap. For many of these people, recent increases in the cost of credit have come as a shock. In some cases, it may even make repaying debts difficult to do.
Lenders targeting the middle class
In many ways, middle class, middle income people are the dream borrower for any lender, according to personal finance experts at Solution Loans; and so adverts and marketing often target them. Highly likely to be able to make all the repayments, they also have good credit scores and are generally more likely to be home owners with assets to fall back on. Over the last decade, debt has been incurred by many in the middle classes, not to make ends meet but to cover the costs of increasingly more aspirational lifestyles. From expensive holidays through to designer clothes and new cars, there are so many reasons to spend – and while credit has been cheap to use, the common attitude is “well, why not.”
And for those with wealth in their homes they are using that to help their offspring embark on the property ladder by using guarantor loans, to help them borrow more to buy a home than they would be able to alone.
The end of fixed rate mortgage deals
Long term fixed rate mortgage deals are a rare find these days and for many middle class people who are just coming out of this kind of arrangement, the financial shock can be significant. Sometimes it’s enough to send the monthly budget into disarray and leave a family with no other option but to take on another debt to cover any shortfall that increased mortgage payments create.
Taking risks with money
Over the past decade we have seen more middle income individuals taking more risks with their money, for example, putting cash into risky investments to try and generate high returns when interest rates are low. Middle income individuals also tend to be homeowners and, in the spirit of doing everything to try to boost property values, many have invested in expensive home improvements. Paying for the cost of an extension or loft conversion is likely to reach five figures and many people have funded this by relying on debt.
Redundancies and start-ups
The middle classes felt the impact of the 2008 credit crunch as much as anyone else and redundancies left many without income and reliant on debt. Middle income individuals are also some of the most likely people to attempt to branch out and start their own business, which often involves getting into debt – especially in the early and more difficult years. Statistically, 8 out of 10 entrepreneurs fail within the first 18 months so it’s not difficult to see how many of those people are now stuck with nothing but debts for their efforts.
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