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Brits abandon saving in favour of debt repayment

17th April 2009 Print
Research from Unbiased.co.uk, the professional advice website, reveals the extent of UK consumers' flight from saving to debt repayment during 2008.

According to Unbiased.co.uk's Savings Brake research, at the start of last year, the public was borrowing 66p for every pound saved with new saving levels rising to a high of £36 billion last spring (Q2). However, by the last quarter of 2008, we were repaying £1.76 for every pound saved, and new saving during this period almost halved to £19 billion.

Overall for the year, Brits repaid a staggering £38.6 billion worth of non-mortgage debt, more than cancelling out all they had borrowed in 2007 and 2008. This marks the first year in Unbiased.co.uk's eight-year study where Brits paid off more debt than they took out in new borrowings.

Unbiased.co.uk's Savings Brake research reveals the ratio of how much we are borrowing (excluding mortgage debt) contrasted with how much we are saving. The research shows that for every pound Brits saved in 2008, they also paid off an impressive 37 pence of debt. Overall, the nation managed to put away over £103 billion in savings during 2008, which however marks an almost 30% decrease compared to savings levels in 2007 (£146 billion).

However, paying off debts has not been a clear focus throughout all of 2008. The first half of the year saw Brits continuing to take out over £23 billion in new debt. The second half in contrast saw a dramatic shift in behaviour, with the nation re-paying debts of over £61 billion. Savings levels during the same period plummeted by 45%, from £67 billion in the first half of the year, to £37 billion during the second half.

David Elms, Chief Executive of Unbiased.co.uk, comments: "2008 was a year of two halves in terms of people's financial behaviour. The financial turmoil which hit Britain last summer prompted a dramatic retreat from savings in favour of starting to pay down personal debt. This shift itself is no surprise, but its severity confirms the historic impact of the credit crunch on consumer behaviour and evidence suggests this repayment trend is continuing at pace."

"There is an awful lot of consumer fear and confusion out there right now, and it is vital people seek professional advice from an IFA to enable them to strike the best balance between borrowing, saving and other aspects of their finances throughout these difficult times."

Those interested in boosting their savings should visit Unbiased.co.uk and download a dedicated guide - Join the Savings Revolution - which looks at how you can budget to save more, and options of where to put any extra money. You can also obtain details of local independent financial advisers to talk though the most suitable savings options for you by visiting Unbiased.co.uk