Czechs Struggling to Repay Debt for the First Time in a Decade

Czechs are having a more challenging time repaying their debts for the first time in ten years. The volume of household debt not being compensated began to slowly but surely rise this year, with Czechs behind on payments by 28.2 billion crowns. According to the CRIF – Czech Credit Bureau, this is mainly due to consumer loans.

“Over the past ten years, this is the first time that there has been a year-on-year increase in the overall amount of unpaid debt, which should be taken as a warning signal,” said Jiří Rajl, CEO of the Non-Banking Client Information Register.

At the end of the first quarter, citizens’ debt reached 3.18 trillion crowns. The overwhelming majority of this debt comprises mortgages, which are long-term liabilities. “Short-term loans, whose total volume is increasing again, are riskier,” Rajl noted.

Over 170,000 people are behind on such payments, with the average amount owed by each being over 134,000 crowns.

Experts advise not to postpone once payment problems arise but to immediately contact the loan provider. Reputable companies offer refinancing options and a new repayment schedule. Otherwise, there is a risk of falling into a debt spiral – new, often riskier obligations arise, accompanied by even more challenging conditions and penalties.

The volume of debt at risk of non-payment has increased most rapidly among people aged 30 to 34 – by over a tenth. This age group also has the fastest-growing overall volume of consumer loans. However, the volume has increased among all age groups except the oldest, over 55.

“Unfortunately, the data is not surprising. It was clear that such a high increase in the price level, driven by high energy prices, would gradually begin to affect the growth of short-term loans and the lower ability to repay them. We saw the first signals of this last year in the Solus register,” said Radek Hábl from the Institute of Prevention and Debt Resolution.

According to him, many people use short-term loans to deal with high arrears for energy. Otherwise, immediate disconnection threatens. Thanks to the loan, they gain some time. “The increase is also related to the fact that utility and energy bills for last year are coming in right now, especially for homeowner associations,” Hábl noted.

According to Daniel Šmejkal from the Debt Counseling Center, people also get into debt due to high food and transportation costs. “We see overall budget pressure among our clients, even though the state subsidy for housing has helped a lot. There are still plenty of jobs, but clients with lower wages have their hands deeper in their pockets,” Šmejkal told Právo.

Half of the Income Goes to Housing and Food

Due to high inflation, the real incomes of Czechs have been falling for the second year. According to regular research by PAQ Research for Czech Radio, the proportion of households’ expenses on food and housing has increased significantly from November 2021 until the end of March this year.

The average household spent 23 percent of its income on housing a year and a half ago, including all energy, water, regular fees, rent, or mortgage payments. In March, it was 31 percent. Overall spending has risen from 43 to 49 percent when food purchases are considered.

Many people have been forced to incur debt, but some have trouble repaying these obligations. In the first quarter of this year, citizens’ debt increased year-on-year by another three percent to 101.8 billion crowns. Consumer loans increased by 5.7 percent year-on-year, reaching 541.4 billion crowns. For housing, it was up 2.8 percent to 72.8 billion crowns.

The average long-term debt per person reached 2.4 million crowns by the end of March, up 5.6 percent year-on-year.

Contact Your Creditors and Consider Consolidation

“If a person gets into trouble with loan repayment, we advise them to contact the loan provider immediately. If they do not delay payment and actively seek a solution, there are more ways to help them,” said Miroslav Zborovský, Home Credit’s ombudsman.

“One option is consolidation if they have more loans. The worst thing is not to react; the debt never disappears and will only grow over time. We also offer contact with non-profit organizations to advise them,” he added.

Daniel Šmejkal also advises acting promptly with the creditor. In case of repayment problems, delays, debt growth, and a debt spiral threat, debtors try to pay off their obligations with other loans, usually with worse conditions.

According to experts on debt issues, people should always think carefully about whether they need a loan and