One result from the pandemic is a general reduction in levels of household debt. New figures show that borrowers have managed to pay off around a third of their non-mortgage debts in the past year.
The data from credit checking firm Experian found that outstanding balances for credit cards and loans have declined by 32% in the last year, an average reduction of £3,764.
The average Experian CreditExpert customer had a credit balance across all accounts, excluding their mortgage, of £7,851 in March. A year earlier, in March 2020, the average balance was £11,615.
According to Experian, average debts had declined since last June, when credit balances excluding mortgages stood at an average of £9,681.
This reduction in outstanding credit balances is likely due to fewer opportunities to spend money on non-essential items and lower transport costs as the daily commute was replaced mainly by working from home.
Another factor behind the decline in outstanding debt is changes in credit availability, with lenders updating their offers.
While lenders were more cautious during the more challenging economic times accompanying Covid-19, some started to return to their pre-Covid lending activities.
James Jones, head of consumer affairs at Experian, said:
“It’s encouraging that borrowers have managed to reduce the balances on their credit cards and loans, with lockdown impacting day-to-day spending and saving habits.
“As a result, many have improved their credit score and financial position more generally.
“The supply of affordable credit has also improved significantly, so people now have more options if they’re looking to reduce interest rates on their existing debts.”
It’s essential to review outstanding debts regularly to ensure you are not paying over the odds for any borrowing and updating your plan for repayments.
James Jones added:
“While some people have been able to improve their financial position, we know many have struggled, especially where incomes have been hit.
“Our advice to people with money worries is to seek support and contact their lenders without delay.
“The sooner there’s a plan in place, the sooner you’ll be back in control of your finances.”