Borrowers unrealistic about paying debt off

Two thirds of borrowers (66%) have unrealistic expectations about how quickly they can pay off their debts, according to research by personal finance information website Fool.co.uk.

The results showed that average non-mortgage debt is £11,000. However, many borrowers are not paying nearly enough to clear their debts within the three years they expect to be debt free. It was found that in the main, borrowers are only paying around an eighth (13%) of their salary towards their debt.

Based on calculations using interest charged at 14%, two thirds (66%) of borrowers will be disappointed to discover that it will take a total of 91 months to clear their debts. This is more than twice as long as they expect. They will also pay back £167 for every £100 borrowed.

Younger people with debts should take note. Two out of every five (40%) of those in their forties say they have non-mortgage debts of over £20,000. Additionally, a tenth over 58 years of age have debts that they are unable to get rid of.

But it seems that borrowers have high hopes for when they are debt free. Two thirds (66%) intend to save some of what they are now paying in repayments when they are free of debt. A quarter say they will save all of it.

David Kuo, Head of Personal Finance at Fool.co.uk, says: “It is worrying to learn that two out of three people have taken on debts without fully understanding what is involved or how long it will take to repay the loan.

“For many, borrowing money is as easy as walking through a doorway. But it’s a good idea to ensure that you have a way out before the door slams shut.

“Of course, people don’t get thrown in prison for not paying their debts any more. It’s much worse than that. Loans can now be drawn out indefinitely, which means that you are shackled to your lender forever rather than being incarcerated for a while.”

Fool.co.uk’s top tips for paying off debt

Budget carefully to identify where savings can be made
Take a second job to supplement your income
Sell unwanted items to raise cash
Switch your credit-card debts to a 0% card
Make more than the minimum monthly repayment
Pay off your high-interest debts first