61% households are one appliance failure away from debt

New analysis from debt management firm Lowell has found that 61% of households (17 million) don’t have sufficient emergency savings to cover these unexpected costs without turning to credit.

At the time of reporting, the cheapest fridge/freezer available at Argos would set someone back £160, a washing machine £189 and a dishwasher £189. Replacing a broken boiler costs on average £550, but can easily cost over £2,000. Even an emergency plumber or electrician can run into hundreds.

But large numbers of British households have emergency funds that fall far short of those figures. For the 61% of Brits without sufficient emergency savings, even a broken fridge can cause them to turn to credit cards, overdrafts or buy-now-pay-later schemes just to be able to keep food on the table.

This means 17.6 million British households who otherwise managed to pay their rent, energy bills and food costs, are at risk of slipping into sudden problem debt.

It’s not just the lower-income households who are at risk. Data from Lowell’s Financial Vulnerability Index has uncovered that financial vulnerability is spreading into middle-income households, meaning that a one-off appliance breakage can tip even seemingly stable households into a reliance on credit.

For many, this debt is originally seen as a buffer or short-term fix. But in reality, balances grow and repayments fall behind escalating into ‘problem debt’ that becomes unmanageable.

Often, preventative measures such as appliance maintenance plans or insurance are often treated as optional extras, rather than essential protection. For households on tight budgets, the monthly cost of cover can feel like a luxury they simply can’t afford, even though going without it exposes them to far greater financial risk when something inevitably breaks.

John Pears, UK CEO at Lowell said “What we see behind the numbers is that a large proportion of people don’t fall into debt because of irresponsible spending. More often than not they fall into debt because of a sudden income shock that couldn’t be planned for or avoided, such as a boiler breaking in winter, a fridge giving up or a dishwasher flooding the kitchen.

“Those on lower incomes are less likely to be able to afford the monthly cost of insuring their appliances which would protect them from sudden costs or have an emergency fund.

“When you don’t have any emergency savings, those moments become financial shocks that can take years to recover from. The bill may go on a credit card or an overdraft, then interest starts to build, and suddenly what began as a £200 emergency becomes a much bigger burden.

“By the time someone comes to us, it’s often not one bad decision. Usually, it’s a chain reaction that starts with one unavoidable bill as people try to keep their homes warm and their food safe. In these cases, debt is about survival, ensuring they can keep their daily lives moving.”