Debt, credit and the cost of living crisis

Over the past month, it has become very noticeable that clients who previously preferred to pay by cash, debit card, bank transfer or PayPal have been using credit cards to pay for services. On the other hand, many people who already used credit cards to pay, are now either paying by other means.. I guess the plastic has been maxed out.

As a start up company in June 2020, Muscle Mechanics needed funding to establish itself as an ecommerce business. However we failed to fit the criteria of the majority of government business support packages. Therefore we had no choice but to use creditcards with balance transfer deals to keep going. These cards were our lifeline and maintained our supply of stock as well as feeding the family. Muscle Mechanics was set up as a legacy for my Son who was diagnosed with a brain tumour in 2017. He has been recovering all his physical skills but still needs round the clock care. Being parents as well as carers and business owners it was a huge risk with our Son's health on the line. Using creditcards for short term debt can be a great help but you need to know what you are doing. Coming from a banking background this knowledge helped me through a tough 18mths. With so many resorting to credit the interest rates will only go up making small businesses face difficult decisions about whether to go without pay or certain essentials to make ends meet.

For people already with credit card debt, I see them increasingly looking to find a 0% balance transfer card to take the sting out of the APR. I am also seeing a lot more people searching for 0% on purchase cards. People are wanting to lock in cheap credit whilst they can. People's financial wriggle room is getting tighter with their wages being stretched too far by soaring inflation. Even though credit is never a good idea to use for utilities and daily living, in the current climate a lot of people will feel they have no choice.

Sales have plummeted since March and although I’ve sold out of many of the best selling toys there isn’t the funds in the business, after expenses have gone out, to restock them. So for the first time I’ve recently taken a PayPal Working Capital loan to enable me restock popular toys such as flower presses, kids gardening tools and outdoors toys. Hopefully orders will pick up over the summer and I won’t regret the decision to take on debt. I’ve also noticed a lot more customers using Klarna either to buy now pay later or spread the cost of their orders. I wasn’t sure if I want to add this option to the website and encourage people into debt but customers were asking for it and as a parent I understand that if they have a child’s birthday coming up payment plans can be really helpful to spread the cost.

I have definitely noticed a downturn in online sales over the past few months, particularly in commissioned and higher priced pieces. At face to face markets, customers are trying on jewellery but not buying as often. I've stopped booking markets as the pitch fees are too high to cover when sales are low. I'm fortunate as I also have a day job but if this was my only income I'd be in trouble.