Thirteen million UK households expect to dive further into the red in 2015

Despite last month’s Budget stating UK debt would begin to fall next year, 13 million households believe their situation is going to worsen before it gets better, according to research by MoneySuperMarket.

Insurmountable debt mountain

The comparison site found that of the 33 million adults (66 per cent) with existing unsecured borrowing such as credit cards, overdrafts or loans,13 million (25 per cent) will have to take on even more debt to cope this year. This is an incredible 44 per cent increase from 2014, when nine million (30 per cent) were forced to move further into the red. 18 to 34 year olds are particularly vulnerable, with almost three-fifths (58 per cent) expecting to use credit to cover their costs this year.

Overall, 15 per cent of those in debt state they will try not to use any more unsecured credit, however they may have no other choice if they face unexpected expenses. An additional 14 per cent already find it difficult to live within their means so will need to use credit to fund the shortfall, and this figures doubles to 28 per cent amongst 18 to 34 year olds. A further 9 per cent will be forced to use credit simply to cover their essential monthly outgoings.

Two-fifths (37 per cent) of people in debt continue to rely on credit in order to pay their way day-to-day, be it a credit card, personal loan, overdraft, store card or a finance agreement. One in ten (nine per cent) will pay for their utility bills (gas, electricity, water) on plastic, eight per cent have to resort to credit to cover their transport costs and a further four per cent will fall back on credit to pay for their mortgage or rent.

Kevin Mountford, head of banking at MoneySuperMarket said: “While inflation is at an all-time low, and UK debt is expected to fall next year, there is still a long way to go before many consumers are out of trouble. It’s important that those relying on credit keep in control of the situation, so their debt doesn’t spiral out of control. Simply working out a realistic monthly budget and cutting out unnecessary expenditure should be the first step.

“Consumers should also ensure they have the most suitable financial product to get them back to black. For example, consolidating several balances onto a credit card that charges zero per cent on balance transfers will help cut out any extra costs if they can pay the balance back in time. If this is going to be difficult, then a low rate credit card or a low rate loan are other options.”

Making headway

However, the report shows people are making some inroads into tackling their debt. Almost a third (30 per cent) pay what they can each month to try and clear the deficit as quickly as possible. Furthermore, a fifth (21 per cent) are making a monthly budget and are actually  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 (14 per cent) and are even stopping going out (13 per cent), in order to get their finances back in shape.

Kevin Mountford continued: “On a more positive note, those in debt appear to be determined to tackle their finances which is great. Remember it’s also important consumers understand their credit profile before applying for help as this will dictate whether they will be able to consolidate debts. It may be worthwhile for those with poor credit records to speak to one of the free debt charities such as Step Change or Citizen’s Advice for help or further advice.”