Self-employed suffering with double the debt of employed

StepChange Debt Charity
by Lovemoney Staff StepChange Debt Charity on 24 January 2013  |  Comments 2 comments

Turning your back on working for 'The Man' can seem an attractive proposition, but self-employed workers seeking debt help have double the debt of employed people.

Self-employed suffering with double the debt of employed

We’ve seen a rash of familiar high street names going into administration in the last week or two - including HMV, Jessops and Blockbusters - after the companies ran out of lending options. It’s a similar story with self-employed people - we’ve found that they’re struggling with nearly twice as much debt as those working for an employer.

Research commissioned by us from the Centre for Economic and Business Research (CEBR) revealed that the average non-mortgage (secured and unsecured) borrowing of self-employed people asking us for advice stood at £42,500, whereas for those in employment the average was £24,200.

What has caused this massive disparity between working for 'The Man' and working for yourself?

Taking out extra debt

Unsurprisingly the huge difference indicates that the self-employed are taking on debts to try to keep their businesses going.

Even thriving businesses sometimes have to borrow to deal with cash flow issues, but these statistics point towards people taking out debts they are personally liable for, just to keep afloat. While this may work for a short-term emergency, the same variable income levels that led to the borrowing can make it hard to service the debts successfully.

Why are the self-employed struggling?

It can be easy to think that building a business through your own perseverance is a one-way street to untold freedom and success. However, we found that the average monthly income of self-employed people asking for debt help stood at £1,321, compared to the £1,542 of those working for an employer.

We’ve also found that the self-employed are struggling more to cover their own day-to-day household costs. The average self-employed client had £211 a month more going out than coming in.

It seems that the self-employed are not able to generate enough income from their business, and this can lead, inexorably, to even the household bills becoming unaffordable.

Mortgage debts

Another shocking stat contained within the research revealed that the average secured debt of self-employed people who came to us was £206,500, compared to £56,600 for people who were employed.

While some of this difference may be down to self-employed people having more expensive properties, it’s likely that many have taken out extra mortgage borrowing to keep their business afloat.

These figures suggest that many businesses aren’t producing enough income for their owners and are being propped up by lending to keep them going.

What to do if you’re self-employed and have personal debt

It can be very difficult to manage both your personal and business costs when you’re self-employed. If you’re worried about your debts then it’s important you get the right help.

If you have your own business and are worried about personal debts, then get in touch with us. We can help you plan a business budget that will help work out your personal income and look at your options moving forward.

Our advice is free of charge and completely impartial. You can receive our help online using our free advice tool Debt Remedy or you can call us and speak to an advisor.

To note: If you have debts in the name of your company (and no personal debt) then our advice is different, as falling behind on those payments will impact on your business. In this situation we’d recommend talking to our friends at Business Debtline.

More on debt:

Debt schemes that prey on those in need of help

Five money resolutions you should make this year

Healthy food and a healthy bank balance: you can have both

The dangers of multiple payday loans

Overdrafts: the debt problem you didn't realise you had

New laws mean credit card debt can affect your mortgage

Budgeting was easier when we were paid weekly

Why a 0% credit card could mean 100% trouble

Losing your job isn’t the only cause of middle age debt

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Comments (2)

  • disabled_r
    Love rating 100
    disabled_r said

    There is a lot of truth in this article. Not only does the entrepreneur have less coming in, it is often erratic which make things even more difficult.

    We really have become a nanny state (aided by the EU) and original thought and opportunities in business do seem to be suppressed now. A far cry fom the Victorians of 150 years ago, when there were incentives to invest and prosper.

    Our tax regime doesn't help, either.


    Report on 24 January 2013  |  Love thisLove  1 love
  • electricblue
    Love rating 785
    electricblue said

    What exactly does this article tell us which isn't obvious? Self-employed have both personal and business finance rolled into their personal debt and it can be tough, but the article does not quantify how many self-employed as a proportion of those in that category are in difficulty. None of the stats are 'shocking' unless to a total fool who does not understand what being in business means. I've had spectacular successes and failures in my business career, but things are very much on the up right now for myself and everyone I know in my business field which spans automotive, aerospace and some consumer products.

    Report on 24 January 2013  |  Love thisLove  1 love

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