Debt is not intrinsically good or bad. It can be used to maintain household consumption while income is temporarily low, or to bring forward the consumption of a good, such as taking out a mortgage to buy a home. Debt-facilitated transactions make up a large proportion of economic activity, with supporting regulations in place to ensure products are competitive and reduce risk for consumers.
Most people with debt do not experience major problems repaying it. However, when debt or repayments become unsustainable, it can drive worsening mental and physical health. And when health or employment circumstances change, it can make people’s ability to cope with existing debt harder or lead to people taking on new debt. As this long read explores, there is a strong relationship between debt and health. Debt problems can weigh on people’s mental health and the stress can harm physical health as well. Poor health can lead to debt becoming unmanageable, through higher costs or loss of employment and income.
There was a risk during the pandemic that personal debt problems could spiral out of control. Action such as the furlough scheme and increases in Universal Credit, as well as mortgage and debt repayment holidays, prevented this from materialising for most. However, as these support measures are removed and given the future path of COVID-19 remains unpredictable, there is a risk that debt problems could resurge. This may not be in the form of a ‘big bang’ increase in debt but a steady increase as people try to cope in difficult times, leaving people at greater risk of ‘problem debt’ (see Box 1) if their circumstances change, or there are further external shocks either through the labour market or to prices. This may particularly be the case for those who have struggled financially during the pandemic through job loss, furlough, or missing out on support (such as many of the self-employed).
Even before the pandemic, there had been a notable change in the composition of debt problems that people sought help with – shifting away from private sector debts towards debts owed to the public sector, such as council tax. In times of difficulty, the public sector has increasingly become a source of debt anxiety instead of relief. Reviewing how the public sector creates and collects debts should be a priority for government, especially after the £20 per week cut to Universal Credit, to avoid creating a further stressful burden on low-income households.
This long read goes on to explore the relationship between debt and health, trends in debt up to and since the pandemic, and policy responses that can reduce the impact of problem debt on health.