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Cost of living crisis and debt in the UK

Cost of Living Crisis and Debt: A UK Guide for 2026

Updated for 2026

The cost of living crisis has become one of the defining financial challenges for UK households. Rising prices for food, energy, housing and everyday essentials have squeezed budgets across the country, leaving millions of people struggling to keep up with their bills. If you are finding it harder to make ends meet, you are not alone. This guide explains how the cost of living crisis is connected to growing personal debt, what signs to watch for, and what practical steps you can take to regain control of your finances.

How the Cost of Living Crisis Is Driving Debt Across the UK

Between 2022 and 2026, the cost of everyday goods and services in the UK has risen sharply. According to the Office for National Statistics, consumer prices remain significantly higher than pre-pandemic levels, even as headline inflation has eased from its 2023 peak. The problem is that wages have not kept pace. For many households, the gap between income and outgoings has widened to the point where borrowing becomes the only way to cover basic costs.

Credit card debt, overdraft usage and buy now pay later borrowing have all increased during this period. StepChange reported record numbers of people contacting them for debt advice during 2025, and that trend has continued into 2026. When you are using credit just to pay for groceries or utility bills, the debt can build quickly and become very difficult to manage on your own.

The cost of living crisis has also made it harder for people who were already carrying debt. Higher interest rates on loans and credit cards mean that existing balances grow faster, while the money available each month to pay them off shrinks. It creates a cycle that is tough to break without the right support.

Which Household Bills Are Causing the Most Financial Pressure?

Several areas of household spending have been particularly affected by the cost of living crisis:

  • Energy bills remain well above their 2021 levels. Even with the energy price cap adjustments, a typical household still pays considerably more for gas and electricity than it did before the crisis began. You can check current rates through the Ofgem price cap page.
  • Food prices have increased by over 25% since 2021 according to ONS data. While the rate of increase has slowed, prices have not come back down, so your weekly shop costs significantly more than it used to.
  • Rent and mortgage costs have risen, driven by higher interest rates from the Bank of England. If you are on a variable rate mortgage or coming off a fixed deal, your monthly housing payment could have jumped by hundreds of pounds.
  • Council tax continues to rise year on year. Many local authorities increased bills again in April 2026, adding further pressure to already stretched budgets.
  • Cancelling direct debits might seem tempting when money is tight, but this can lead to larger problems including default charges and damaged credit ratings.

When several of these costs increase at the same time, the combined effect on your monthly budget can be severe. Many people find themselves choosing between paying one bill or another, which is a clear warning sign that debt is becoming unmanageable.

Signs the Cost of Living Crisis Is Affecting Your Finances

Debt problems rarely appear overnight. They tend to build gradually, and the cost of living crisis has accelerated that process for many people. Here are some common signs that your financial situation may need attention:

You are regularly using credit cards or overdrafts to cover day to day expenses like food or travel. You are only making minimum payments on existing debts. You have missed one or more bill payments in the last few months. You are receiving letters or calls from creditors chasing outstanding balances. You feel anxious or stressed about money on a regular basis.

If any of these sound familiar, it is important to act sooner rather than later. The longer debt goes unaddressed, the more it costs you in interest, charges and stress. There are practical steps you can take to start dealing with debt before it spirals further.

Free debt advice is available from organisations like MoneyHelper, which provides impartial guidance on managing debt and budgeting during the cost of living crisis.

Debt Solutions Available During the Cost of Living Crisis

If your debts have reached a point where you cannot realistically repay them from your current income, there are formal and informal solutions available. The right option depends on how much you owe, what assets you have, and what you can afford to pay each month.

Individual Voluntary Arrangement (IVA)

An IVA is a legally binding agreement between you and your creditors. You make affordable monthly payments over a set period, typically five or six years, and any remaining debt at the end is written off. Interest and charges are frozen once the IVA is approved. This can be a strong option if you have a regular income but cannot afford your current repayments. You can find out more about whether you qualify for an IVA on our dedicated page.

Debt Relief Order (DRO)

A DRO is designed for people with low income, few assets and debts under £50,000. It provides a 12 month moratorium during which creditors cannot chase you for payment. If your circumstances have not improved by the end, the debts are written off. The Insolvency Service provides official guidance on DRO eligibility.

Debt Management Plan (DMP)

A DMP is an informal arrangement where you make reduced payments to your creditors based on what you can genuinely afford. It is not legally binding, which means creditors do not have to accept it, but many will agree to reasonable proposals. A DMP can give you breathing space while the cost of living crisis continues.

Bankruptcy

For some people, bankruptcy may be the most appropriate route. It clears most of your debts, although it does come with significant consequences including the potential sale of assets and a lasting impact on your credit file. It is worth understanding all options before choosing this path.

If you are looking for a way to become debt free, speaking to a qualified adviser can help you compare these options side by side and find the one that fits your situation.

Where to Get Free Debt Help in the UK

You do not need to pay for debt advice. Several organisations offer free, confidential support to anyone struggling with debt during the cost of living crisis:

  • StepChange: the UK’s largest free debt charity, offering advice online and by phone
  • MoneyHelper: government-backed service providing tools and guidance for managing money
  • Citizens Advice: free advice on debt, benefits and consumer rights
  • The Insolvency Service: official government body handling formal insolvency procedures

If you would prefer to speak with someone directly about your options, Swift Debt Help can connect you with a specialist who will review your circumstances and explain what solutions are available. There is no obligation and the initial assessment is free. You can also read our guide on energy saving tips to help avoid debt for practical ways to reduce your outgoings right now.

Take the First Step Towards a Debt Free Future

The cost of living crisis does not have to define your financial future. If you are struggling with debt, there are solutions designed to help you regain control. Complete the short eligibility check below to see what options may be available to you.

Check Your Eligibility