In April 2020, British households repaid record levels of debt on their credit cards and personal loans. This figure, around £7.4bn, is the largest net repayment since before 1993. To further put this into perspective, most months, we manage to repay around £300million in just credit card debt. In April, this rocketed to £5bn.
With many experts predicting a slump in the economy, this indicates that people may be preparing to weather the storm. As a spokesperson for a personal finance website put it:
You often hear how people are reckless with credit, well this is the polar opposite.
“It’s the level of caution and good financial common sense of people paying down debt which I find encouraging… it’s good that people are making efforts to reduce debt now.”
This increase is probably due to fewer people going out or spending money on leisure activities. In turn, funds which are usually spent on these expenses are instead being diverted into cutting debts. Furthermore, during this time, it’s common for people to channel cash into savings accounts.
All in all, this could act as an effective financial cushion should the economy struggle or enter recession.
However, this doesn’t apply to everyone
When looking for money-saving tips, some suggestions will advocate cutting down spending or the number of ‘nights out’. As evidenced by the above statistics, that appears to be good advice.
If you’re managing to clear debts at a faster rate than you were before, this should demonstrate the power of reigning in spending every once in a while.
Unfortunately, this isn’t the case for everyone. For those who have lost their jobs or just struggling to make ends meet, the idea of stepping up repayments is something which they cannot afford.
Should the UK enter recession though, and you struggle to repay your lenders, we’ll be around to lend a helping hand.
