Evaluation Scotland Wales
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Many UK adults rely on credit to makes end meet, but they do not tend to seek help until they reach crisis point

How can we help people who are reliant on credit to make ends meet?

Credit is a valuable and sometimes essential tool for managing finances. However, the 2018 UK Adult Financial Capability survey found that nine million adults use credit to pay for food and bills because they have run out of money, indicating that a large number of UK adults rely on credit to make ends meet.

Compounding this problem, many people pay more than they need to for credit, for example over three million ‘financially squeezed’ adults are paying more for credit by only making low (including minimum) repayments. The costs of mounting credit balances can prevent households from building a savings buffer, resulting in a vicious cycle of borrowing, as unexpected bills lead to further need for credit.

This review brings together evidence which shows who becomes over-reliant on credit and why, how to identify people at risk, and which solutions are most effective.

Who becomes over-reliant on credit?

Anyone can fall into the trap of borrowing more than they can afford, but research shows that the following demographic groups are more at risk of becoming reliant on credit than others. Further work is needed to understand why these groups are more at risk, as well as the role of other compounding factors, for example that women are more likely to be in lower paid work, or to be single parents.

Households with low disposable income

Income is an important but complex factor. Money and Pensions Service market segmentation found that 18% of ‘struggling’ households, 21% of ‘squeezed’ households, and 15% of ‘cushioned’ households say they regularly use credit for food and bills, because they have run out of money. Low-income households are less likely to have a savings buffer and more likely to use expensive forms of credit, but they also tend to exhibit better credit management behaviour (such as having lower credit balances, or paying more than the minimum payment), than middle- and high-income households. Understanding disposable income (which takes into account the additional costs faced by different types of households e.g. those with having children), rather than income alone, may be more useful in identifying at risk groups across the income spectrum.

Younger adults

Although young adults are less likely to be struggling with credit than 25-34 year olds, participants in several studies trace their financial difficulties back to unsolicited offers of loans, credit cards and overdrafts in their late teens and early twenties.

Younger women

Among young adults, young women are particularly at risk. Young women are more likely to have used some form of credit or loan in the last 12 months and hold higher credit card debts. Women in all age groups are also more likely to use more expensive forms of credit than their male peers.


Households where the youngest child is 3-14 years old are more likely to use credit to pay for food and bills, and single parent households are more likely to use expensive forms of credit, such as home-collected credit.

Illness and disability

Multiple studies have shown that people with disabilities or long-term illnesses often face higher living costs and greater barriers to employment, weakening their ability to develop savings and increasing their potential need for credit. In addition, a Money and Mental Health Policy Institute (MMHPI) survey of nearly 5,500 people with mental health problems found that 59% had taken out a loan when unwell which they wouldn’t otherwise have taken out.

What drives over-reliance on credit?

There are several factors which encourage credit use – both external, such as income pressures and emergencies, and internal, such as individual psychology:

  • Irregular income and expenditure - volatile incomes (e.g. zero-hours, short-term contracts or fluctuations in benefits payments) and irregular outgoings (e.g. increased costs during school holidays) create the need for credit to smooth out shortfalls.
  • Emergencies and life events - redundancy, illness, starting a family or moving home put intense pressure on household finances. Credit offers a short-term solution, but people often underestimate the likelihood and impact of life events and overestimate their ability to repay.
  • Social pressures - Several studies have shown that people take out credit in order to keep up with their peers and live the lifestyle they believe is expected of them. Increased income can add to these pressures, as people turn to credit to meet the standards they associate with their higher salary or status.
  • Psychological factors - the 2018 UK Adult Financial Capability survey and a national survey of financial wellbeing in Norway both found associations between spending self-control, impulse control and borrowing for everyday needs. Decisions around credit use are also influenced by a range of heuristics (or mental shortcuts) which underpin unconscious decision-making, including:
    • Present bias: evidence suggests that people whose financial decisions are biased towards the present rather than the future borrow larger amounts;
    • Optimism bias: overconfidence around future pay rises means people tend to overestimate their ability to repay and take out more than they can later afford;
    • Framing effects: framing of product information can influence behaviour. There is evidence that people perceive costs shown in percentage terms as lower than the same costs shown in pounds and pence;
    • Anchoring effect: people are often subconsciously ‘anchored’ to the minimum payment amount as the default, repaying only the minimum their lender suggests.

Combinations of these internal and external factors may, over time, normalise borrowing habits and increase credit balances beyond an affordable level.

How can we spot the signs that someone is at risk?

Typically, people do not seek support with credit until they reach crisis stage. Therefore, spotting the signs that someone is at risk, and directing them to help, is a challenging but crucial first step to supporting people who are over-reliant on credit. Certain behaviours or patterns of credit use are indicative of problematic borrowing and may be signs that a person needs help:

  • Revolving balances - repeatedly failing to repay or paying only the minimum payments
  • Taking out multiple forms of credit - particularly when turned down by mainstream lenders
  • ‘Robbing Peter to pay Paul’ - shifting balances between different credit sources and using one to keep up with payments on another
  • Overdraft use – the repeated use of overdrafts to smooth irregular income or outgoings
  • Informal borrowing - borrowing from friends and family is particularly prevalent in struggling households and places a strain on relationships

How can we help people who are over-reliant on credit?

When dealing with high, unmanageable levels of debt, specialist debt advice is the most appropriate support for beneficiaries. However, for people who are starting to depend on credit to make ends meet, but are not yet in need of debt advice, evidence suggests the following approaches can be effective:

Reducing the cost of current and future borrowing

Community Development Financial Institutions (CDFIs), Credit Unions and affordable rent-to-own providers can help to reduce the cost of borrowing for small financial emergencies. An evaluation of the affordable rent-to-own provider Fair For You showed that their users save money, are at less risk of increasing debt, and experience better wellbeing compared to users of higher cost rent-to-own stores. However, these options are not always accessible to people who are struggling with credit, and don’t always meet their needs. Credit Unions for example often only lend to members who have saved with them in the past and typically do not transfer funds as quickly as high cost lenders.

Support to manage variable income and outgoings

Supporting people to manage large, infrequent costs can help them to avoid high-cost credit. An evaluation of the Supported Rent Flexibility pilot, run by the Centre for Responsible Credit with Optivo Housing Association, found that enabling people to under-pay their rent in more expensive or leaner months reduced rent arrears and use of credit for essential spending, and improved wellbeing.

Interrupting spending and borrowing habits

Research by StepChange and the University of Bristol found that after taking out consolidation loans, people typically did not change their spending behaviours and therefore their credit balances continued to rise. Tackling deep-rooted borrowing and spending habits is also essential to tackling credit use. This is too big a question to tackle in this review, but the following two examples from the Financial Capability Lab demonstrate the use of behaviourally-informed interventions to target credit use and repayment behaviour:

  • Sliders - sliders displaying different repayment amounts along a scale can overcome the anchoring effect of the minimum repayment suggested by the lender and has potential to reduce both the length of time taken to pay off the debt and the amount of interest paid.
  • Card controller – spending can be curbed by increasing the friction around it, for example by setting a spending limit and requiring people to send a text if they wish to override it. This can help people to keep to a budget and reduce their need for credit.

Where should further research focus?

Questions for future research include:

  • Why do high and moderate earners become reliant on credit and what help they need?
  • How can we better understand the needs of, and support, at risk groups such as young adults, especially women, those with low disposable income, parents, especially single parent households, and people with poor physical and mental health?
  • What are the impacts of new technological interventions to reduce credit use, curb spending and increase savings?
  • How can low cost credit products meet people’s needs (i.e. instant, short term, easy to access) whilst also being financially sustainable
  • How can behavioural nudges be used to improve credit use and repayment behaviour?
  • How can we help people to recognise the warning signs, and seek help at an earlier stage?
  • How can social pressures and norms around lifestyle borrowing be shifted to encourage saving instead?

What next?

Did you find this review helpful? We would like to know what you think. Please contact us at whatworks@fincap.org.uk with your feedback, and any suggestions for further research or evaluation that should be included in future updates.

This Thematic Review was produced in collaboration with the Centre on Household Assets and Savings Management (CHASM) at Birmingham University, the University of Edinburgh Business School, Toynbee Hall and Ecorys UK.