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Research shows that as the cost of living continues to rise, so too is borrowing – whether that’s via credit cards, or payday loans. While it can be tempting to opt for a loan in financially trying times, it’s important to keep your wits about you, and not rush into a decision without thoroughly researching.

At The Salary Calculator, we know how challenging it can be navigating the world of borrowing and loans, so below, we’ve outlined some top tips to bear in mind to keep yourself safe. This article will explore:

• Why the cost of living is getting more expensive
• How more people are borrowing than ever
• How to protect yourself when borrowing

How is the cost of living getting more expensive?

The cost of living has reached crisis levels, leaving many in UK faced with their worst financial situation in decades. Fuel, housing, and food are all getting more expensive. According to the ONS, in February, Inflation hit a new 30-year high of 6.2%, and housing costs and services increased by 7.2% within the last year, too. Moreover, rental prices went up 2.3% and homeowners saw a hike of 2.5%.

Within the same time frame, transport costs have seen an increase of 11.5%, with petrol and diesel prices rising and even hitting record levels in February. Meanwhile, food and drink prices have soared by 5.1% – according to statistics, prices for bottled water, soft drinks, juices, meat, sugar, jam, syrups, chocolate and sweets increased the most.

Looking ahead, as the Russia-Ukraine war continues, with Russia and Ukraine being responsible for 30% of global wheat exports, food prices are only set to rise further.

It’s not just food, fuel and housing that’s seen a hike, either. Clothing and footwear have taken a hit, too, rising by 8.9%. Likewise, furniture, household equipment and maintenance saw a similar increase, rising by 9.2% in the past year.

Alongside the price rises, wages across the UK are now falling at their fastest rate since 2014. This is, again, because inflation is spiralling out of control.

More people borrowing than ever before

People across the UK are feeling the pinch as prices continue to soar and are turning to borrowing to help them cope with increasing financial hardship. According to figures published by the Bank of England (BoE), people borrowed a net £1.5 billion on credit cards in February, which is reportedly the highest since records began. This is even up from 2020, which saw nearly 9 million of the UK’s poorest significantly increase their borrowing amounts.

Joanna Elson, the chief executive of the Money Advice Trust, which runs the National Debtline and Business Debtline, said these borrowing statistics are “an indicator of the underlying challenges households face in meeting the growing cost of living” as she called on the chancellor to provide more targeted help for hard-pressed households.” Adding: “Our concern is that more people will be pushed to credit to cover rising bills, which could be storing up problems further down the line when repayments are due.”

Of course, credit card borrowing is not the only kind of borrowing, payday loans are lurking out there, too and according to reports, interest in these kinds of loans has been ballooning in recent months as living costs surge. Research from Raisin UK has found that in the last 12 months, internet searches for these kinds of loans shot up by 350%.

Experts, however, warn that payday loans, while sometimes attractive, are an easy route into a slippery path of debt. Kevin Mountford, Co-founder of Raisin UK, outlined: “It is easy to fall into a cycle of debt with these schemes if you continually require them to cover shortfalls. With rising interest rates, payday loans will most likely leave you struggling financially, even more as you will owe these companies a continually growing amount of money.”

Adverts for this kind of predatory loan are on the rise and appearing on Google, too. A recent report found that those who searched terms like “quick money now” and “need money help”​ were directed by Google to sites offering high-interest loans to those in financial difficulty. One site advertised when individuals searched for the above terms was Tendo Loan, which offered “Cash in 10 minutes guaranteed. 3-36 months. No credit check!” The site went on to say that those looking to find a loan could have it “delivered faster than pizza!”

How to protect yourself when borrowing

It’s undeniable that millions of people in the UK are facing increasing financial hardship, and predictions are that it is only going to get worse. By 2023, it’s said that as many as 16 million people could be officially classed as living in poverty. So, it’s understandable that some may be faced with no other option than to borrow. That said, when borrowing, regardless of who you’re borrowing from, it’s important you safeguard yourself. Below, we’ve highlighted some top tips.

Research, research, research

When financially desperate, it’s easy to get caught up in signing a loan that you know little about. So, it’s important to make sure you research. Research into the company, make sure that they’re reputable and trustworthy, and get all the facts about the loan, including and especially the small print.

Don’t get conned into borrowing more than you asked for

Lenders may try and talk you into borrowing more than you were looking for or encourage you to opt for a different kind of loan. Make sure whatever decision you make is informed, and not pressured. Take your time, and stick to your guns.

Don’t overcommit, and make sure you can pay back whatever you borrow

Make sure you review your finances before committing yourself to a loan. Entering an agreement with high-interest rates may lead you down a debt hole that’s hard to get out of, and leave you in a worse position than when you started.