Why debt is not a working class problem

It is a common mistake to think that everyone afflicted with serious debt problems are those on lower incomes.

Perhaps you assume it is only working class people who over-extend credit, buy items on hire purchase, and are more susceptible to addictions such as gambling.

These assumptions are wrong, for though debt does affect poorer people more than the rich, anyone on virtually any income can get into serious debt problems if they do not manage their finances wisely.

Arguably it is actually easier for someone on a higher income to get into difficulty than it is for those on lower incomes.

For example, those on higher incomes are more likely to own their home, live in more desirable locations and be registered on the electoral roll – all of which makes them more attractive to lenders and gives them access to higher levels of credit.

And with a higher income and higher credit comes the temptation to spend more. Combine this with a taste for the good life and a desire to keep up with the Joneses – whether it is exotic holidays or fast cars – and the potential for debt to become a problem is never far away. In addition, a percentage drop in income for a high earner can have a far quicker impact.

No matter what your income is, or what class you belong to, life events can result in unexpected and devastating consequences. Deaths, illness, redundancy and natural disasters can put your financial security in jeopardy.

For many homeowners it is tempting to think they have a significant amount of equity in their homes which could be released in the event of unforeseen debt problems. While this may be the case, it can be dangerous to rely on the value of property to cover debts – as the value can decrease as well as rise.   Equity is not a ‘liquid’ asset and cannot be relied upon at short notice.

Also, if you have missed payments of important bills or have fallen into arrears – especially with your mortgage – when it comes to remortgaging your property you may find you are unable to access the best deals – prime mortgages. Instead you will be forced to look at sub-prime mortgages, which do not offer quite as attractive rates and incur higher fees and charges.

In the case of events such as illness and redundancy, too many people rely on insurance schemes to cover their bills, but these policies often won’t come into effect for a few months and have a variety of exclusions and conditions in the small print which most people don’t check or which aren’t immediately apparent.

It is for all these reasons that financial advisers recommend that everyone should keep at least three months’ of bills and mortgage payments in savings should the unexpected happen.

So no matter how much money you have, you should always look at how much you are spending, how much credit you take and if you have adequate savings. If you think you are experiencing difficulties with debt, seek professional & expert debt advice.