Debt mountain set to rise for nine million UK households

While last month’s Budget indicated that things were improving for many, the situation is likely to worsen for the nine million households who believe their debts are going to increase, with them relying on credit to fund everyday spending for transport (8 per cent), insurance (6 per cent) and energy (5 per cent), according to research by MoneySuperMarket.

Falling deeper into the red

The comparison site found that of the 32 million Brits (63 per cent) with existing unsecured borrowing such as credit cards, overdrafts or loans, nine million (30 per cent) will move even further into the red to cope this year.

Almost a fifth (17 per cent) state that they will try not to use any more unsecured credit, however they may have no other choice if they face unexpected expenses.  Worryingly, six per cent of those in debt expect to have to spend more simply to cover their essential monthly outgoings whilst an additional eight per cent already find it difficult to live within their means so will need to use credit to fund the shortfall – and this figure more than doubles to 19 per cent in the North East.

Debt added daily

Furthermore, the report shows that two-fifths (40 per cent) of people in debt are forced to rely on credit in order to pay their way day-to-day, be ita credit card, personal loan, overdraft, store card or a finance agreement. Almost one in ten (eight per cent) will pay for their transport costs on plastic, six per cent to cover their utility bills (gas, electricity and water) and a further six per cent will fall back on credit to pay for their insurance.

Where possible however, some people are taking necessary action to attempt to pay off their debts, with almost a third (30 per cent) paying what they can each month to try and clear the deficit as quickly as possible. Meanwhile, a fifth (20 per cent) are making a monthly budget and, more importantly, are sticking to it and a further 19 per cent have set up a standing order to pay owed money automatically. Consumers who were making luxury purchases are giving them up (13 per cent) and one in ten people (9 per cent) have stopped going out, in order to get their finances back in shape.

Kevin Mountford, head of banking at MoneySuperMarket said: “We heard in the Chancellor’s budget that the economy is picking up but for many individuals the reality is very different. Money is still extremely tight and it will take much longer for them to feel like they’ve finally got a hold of their finances.

“Those relying on credit of some kind to pay their way need to start doing all they can to break that habit and get themselves into the black. It is encouraging to see that some people have recognised this and are seriously committed to clearing their debt, and using cost saving measures to do this. Debt needs to be tackled head on; simply working out a realistic monthly budget and cutting out unnecessary expenditure should be the first step.

“Interest rates may be low at the moment, but eventually they will climb, therefore it is best to pay off as much as you can now before this happens. Make sure you have the most suitable financial product to help you get back in the black – options include consolidating several balances onto a credit card that charges zero per cent on balance transfers, opting for a low rate credit card if you won’t be able to pay off the balance in time on a zero per cent card, or paying off debt with one low-rate loan. It is also vitally important to understand your credit profile before applying as this will dictate whether you will be able to consolidate. If you have a poor credit record, then it may be worthwhile speaking to one of the free debt charities such as Step Change or Citizen’s Advice for help.”