Self-employed urged not to suffer debt in silence

Handsome take-home pay for some freelance contractors  clearly does not apply to everyone who has gone into business alone, as a debt charity says no demographic is more credit-dependent than the self-employed.

In an annual analysis of household incomes, StepChange found that, of three main types of credit used by those seeking its help - credit card, overdraft and loan, levels were highest among those reliant on self-employment.

Unveiling the findings in the final quarter of last year, the charity showed that the average owed on a self-employed person’s credit cards was £17,237, compared with £10, 517 for a person working full or part time.

On their overdraft, a self-employed person is in the red to the tune of £3,615 (compared with £2,082 for a full-time worker) and with a personal loan, the balance for the self-employed is £13,266 (against £10,479 for their permanently employed counterparts).

Reflecting on its findings, StepChange said: “A major reason for this dependence on credit is likely to be the vulnerability of the incomes of the self-employed.

“While all working households face increasing likelihoods of employment-related drops in income, this is more acute for the self-employed.”

Alongside standard debt, so-called ‘problem debt’ is also higher among its self-employed clients, the charity said, and can be exacerbated when such independent workers use personal money to set up or expand their business.

“There were several examples in the interviews of working people using credit to set up a small business or to buy a franchise,” StepChange, formerly the CCCS, explained.

“This was sometimes triggered by a desire to boost household income or in response to redundancy. The investment did not always produce the expected returns, which in turn meant that credit was used for running costs, such as buying stock.”

According to one of the charity’s directors, Delroy Corinaldi, the worst move indebted self-employed people can make is to keep their financial problems to themselves.

“While anyone, whatever their job or income, can find themselves struggling with debt, those working for themselves seem to be particularly vulnerable to debt problems,” he said.

“I would be particularly concerned about the strain of trying to seek enough work to maintain an income while struggling with debt. Anyone in this situation should not suffer alone but seek professional advice and support help from a debt charity as soon as they realise that they have a problem.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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