Changing shopping habits during lockdown leads to debt struggles

Wallet credit cards debt
Picture: Steve Buissinne from Pixabay

MORE PEOPLE in the borough are struggling with debt than last year, partly due to a change in shopping habits.

In January, Citizens Advice Wokingham helped 77% more people with debt concerns than the year before.

The rise is partially attributed to the cost of Christmas, after 10 months in the pandemic.

In December, Jake Morrison, chief executive of Citizens Advice Wokingham said he expected debt concerns to be high in the new year.

He told Wokingham.Today the cost of celebrations and increased gap between pay-days meant many families would struggle.

Over the last month, data collected by the charity shows the biggest
concern was council debt arrears, followed by credit, store and charge card debts.

Just under 100 residents called the charity looking for help with 284 debt-related problems. 

During that time, Citizens Advice secured £42,576 of debts written off for clients.

Claire Oughton, advice and operations manager at Citizens Advice Wokingham, said many residents were seeking help after spending on credit when cash was tight.

This, she said, was creating a spiral of high interest rates for outstanding payments.

“Unfortunately we see that many are persuaded to go this route due to the attractiveness of having new items without having to find the cash for it,” she said.

It follows the Financial Conduct Authority’s (FCA) Woolard Review, published this month which confirmed there would be tighter regulation for buy now, pay later schemes, such as Klarna or Clearpay.

These services are used by millions of shoppers across the country to split payments – but unlike credit or store cards, there is no interest until an agreed date.

Yet the FCA warned this could still lead to the build-up of debts, as one in 10 shoppers already had debt elsewhere.

Ms Oughton said that the charity has not seen many issues with buy now, pay later schemes yet, but said this could be due to their new presence on the financial scene.

She added: “That said, we have had some clients who have been using Klarna and one client we have completed a bankruptcy for which included a debt to Splitit – another buy now pay later organisation.”

The Woolard Review warned that rising unemployment and pressure on earnings from the pandemic would increase demand for credit and credit-like services.

It said buy now, pay later products are often seen by consumers with a poor credit history as a viable alternative to more traditional forms of regulated lending.

It is also about image and lifestyle, the report warned.

According to the review, 90% of purchases on buy now, pay later schemes are for fashion and shoes. It said adverts for payment-delaying schemes often focused on aspiration, tapping into consumer desire to live a certain “lifestyle”.

The report also found that some shoppers were using multiple buy now, pay later schemes.

One user said: “If I’m at my limit with Klarna, I’ll look and see if the shop offers another type.”

Although currently unregulated, research showed many customers assumed the service was overseen by the Financial Ombudsman Service.

The assumption of regulation is another key reason to do so, the FCA said. It is hoped this would protect more customers in the future.

For advice or help managing debt, contact Citizens Advice Wokingham by calling 0300 330 1189

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