THE number of households with problem debt has rocketed by more than a quarter over the past three years, a report has revealed.
The total number of UK families living with problem debt – defined by having to spend 25 per cent or more of monthly gross income on unsecured debt repayments outside mortgages or rent – has risen to one in eight, from one in ten in 2012.
Compiled by trade unions, the study, Britain in the Red, found that young people, the self-employed and low-income families have been the hardest hit by the rise in problem debt.
Meanwhile, half of those affected spend a massive 40 per cent of their gross income on debt repayments that are not housing costs.
Lower-income households account for the great majority of this number with 70 per cent of these “extremely over-indebted” households in receipt of incomes of less than £30,000 per year.
TUC general secretary Frances O’Grady said: “Rising household debt is not the sign of a healthy economy. People raiding their piggy banks and borrowing more than they can afford is what helped drive the last financial crash. The fact that more and more are getting into problem debt is particularly worrying given the prospect of interest rates going up.”
She added: “We need a wages-led recovery that works for everyone, not another debt-fuelled bubble.”
The report said that although households overall borrowed less, and paid back more after the financial crisis of 2008, debt-to-income ratios have remained very high as a result of real wages falling between 2007 and 2014 – the longest fall in living standards since records began in the 1850s.
High levels of debt were cited as one of the contributing factors to the recession.
However, the analysis also shows that despite a small fall in overall debt-to-income ratios, the proportion of households with problem levels of unsecured debt repayments is rocketing.
Unison general secretary Dave Prentis said: “The last few years have been tough ones for many working families, who have racked up huge debts just trying to get by. The living standards crisis has left a huge hole in household finances.
“Wages might finally be picking up for those in the private sector, but anyone working in health, education, local government and our other public services still has many more years of pay restraint to survive. And soon-to-be-introduced cuts to tax credits will push many low-income families yet deeper into debt.”
He added: “It is going to take many years for families to get back on an even keel. People having to rely on their credit cards, friends and family, or payday loans just to get through the month is not a sustainable route for our economy.”
The report found that people who take out payday loans spend, on average, 30 per cent of their income repaying them – up from 12 per cent in 2012; while households with store cards spend 21 per cent of their income repaying them – up from nine per cent in 2012.