Revealed: the unexpected bills pushing a third of us into debt
More than 37 million Brits have had to fork out for unexpected expenses in the past year, with a third forced to turn to debt to finance them.
The most common expense that came as a nasty surprise was a bigger-than-expected phone or utility bill, with 30% of adults affected. On average, they had to stump up an extra £196, according to Bright Grey's Financial Safety Net report.
Car repairs came second, with 27% of adults needing to find £432 on average to get their vehicle back on the road.
Another 19% of adults found themselves having to replace or repair a household appliance worth more than £100 - something that cost them £509 on average.
However, the most expensive unforeseen cost was being asked to lend more than £100 to a loved one - on average most people affected lent out £1,091.
A third of those who experienced unexpected expenses admitted to having to turn to credit to pay in the past – 23% used a credit card and 15% went into their overdraft. One in ten people had to ask family or friends for help.
Meanwhile, a quarter of adults who incurred unexpected expenses said they significantly reduced their expenditure to pay for the costs.
The report also found that very few people have a contingency plan should they find themselves without a regular income because of illness or unemployment. Only 11% had critical illness cover in place, only 8% had income protection and 4% had unemployment cover.
No safety net
Jennifer Gilchrist, senior product development manager at Bright Grey, said: "Some families may be able to rely upon their regular income to make ends meet, or have savings pots to dip into – yet the rising cost of living means that there are households who will have no financial safety net to rely upon at all. These unexpected expenses can be worrying enough even for those in work, without considering how they might cope if their regular income were to cease."
Most common unexpected costs of 2013
- Costly bill, £196 (average cost)
- Car repairs, £432
- Replacing household appliance over £100, £509
- Replacing household appliance under £100, £91
- Household repairs, £820
- Loaning money in excess of £100, £1,091
- Vet bill, £328
Source: Bright Grey
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.
This is more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.