Scots piling on debt just to stay afloat

Thousands of Scots struggling to make it to payday each month are spiralling deeper into debt by taking out expensive loans to bridge the gap.

Scots in financial difficulty are taking on more debt than people elsewhere in the UK, according to research published today which sheds new light on Scotland's personal debt crisis.

The report, by insolvency trade body R3, found that more than half-a-million Scots have taken on extra debt in the last three months, including credit cards, loans and higher overdrafts.

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More than four in ten people in Scotland say they struggle to make their money last until payday, with just over 200,000 taking out payday loans in the last year. One in five said they were struggling to repay them, compared with one in ten payday loan users elsewhere in the UK.

John Hall, Scottish council member for R3, said the number of people resorting to payday loans was cause for alarm. "These loans tend to have high interest rates, and often those who use this type of credit find themselves in a vicious debt cycle, especially if they then experience a sudden job loss," he said.

The report comes as the Accountant in Bankruptcy publishes the latest insolvency statistics for Scotland. The figures, out today, are expected to show a modest slowdown in the number of Scots going bankrupt in the last three months.

Low interest rates have enabled many people to keep their finances afloat at a time when rising bills and utility costs, public sector job cuts and low wage inflation are putting pressure on household finances.

But the next rise in interest rates, which experts predict for early next year, could trigger a surge in bankruptcies throughout the UK.

The government's austerity regime is adding to the pressure on Scottish household finances, according to R3, which uncovered growing anxiety over personal finances. Two thirds of public sector workers are worried about their debts, compared with 59 per cent of private sector workers. Credit cards are the biggest debt concern, followed by overdrafts and mortgage repayments.

Mr Hall said: "It is clear that government measures are beginning to take their toll on the nation's finances. Unfortunately, as the cost of living rises, many won't see their financial situation improve for a while."

People in debt difficulties accounted for one in ten cases handled last year by Citizens Advice Scotland (CAS), which said it was not surprised by R3's findings.

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Lucy McTernan, chief executive of CAS, warned that the situation was getting worse.

"The worrying thing is not just the numbers of people in debt, but the extent of the debts they are facing. CAB evidence shows that across Scotland, debt levels increased by 50 per cent over the period of the recession, with the average debt among our clients reaching more than 20,000," she said.More than four in ten Scots going to CAS for help with their debts have gone without food or fuel in a bid to pay down their debts, Ms McTernan claimed.

"The number of young people in debt is particularly worrying. Four out of five young Scots have been in debt by the age of 21, and that a third have owed more than 5,000," she added.