According to a new report from StepChange Debt Charity, over four million people in Britain are using credit as a financial safety net to meet everyday living costs, emergency costs and to cover one-off purchases, with credit cards and overdrafts being the most common types of debt.  

For many people these products can smooth consumption and spread the cost of larger purchases.  However, StepChange’s research has identified how a lack of safeguards and certain product features (such as complex and costly default fees, irresponsible lending, access to multiple products and minimum repayment structures) can result in entrenched financial difficulty.

According to StepChange, there are significant gaps in the availability of affordable and sustainable credit.  For example, around 25% of people using credit as a safety net are in the most financially excluded groups, including those on the lowest incomes and in casual work, on state pensions or unemployed.  This group may not meet the stricter lending criteria of mainstream lenders and some community lenders.

StepChange is calling on banks, government and the wider third sector to work together to provide a range of potential solutions.  Some suggestions include measures to encourage consumers to save money, improved awareness and use of technology and providing microloans to financially excluded people.