Self-employed suffering with double the debt of employed

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.

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.

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