Millions could be sleepwalking into debt, warn experts

Increases in bills for fuel, phones, digital television, credit cards and insurance mean that disposable income is plummeting, according to a study by Halifax Home Insurance.

The research found 87 per cent of people were unaware of exactly how much their household expenditure had changed in the past year and many were still spending at the same rate as before. A third of people interviewed for the research said they had had to use savings or credit cards to pay for household costs within the past year.

In 2011 household expenditure increased by £207 on average. However, the research found that the majority of people thought their household expenditure had only gone up by between £51 and £100. Only 13 per cent thought it had risen by more than £200.

And despite falling incomes, 65 per cent of the 2,000 people interviewed said that a regular bill had gone up in 2011 without their knowledge, and a third said this had happened more than once.

Nearly half admitted that they did not always open bills or check them online.

Paula Llewellyn, head of marketing at General Insurance at Halifax, said: “As this financial inertia takes hold, there is a serious risk that millions of people could end up sleepwalking into debt. We all need to be aware of the reality of rising costs and try and avoid slipping into the red. It is crucial that everyone takes an active role in checking bills and keeping an updated budget of monthly expenditure in order to pinpoint exactly where income is being spent.”

In response to the figures, Citizens Advice Scotland (CAS) said Scots who were struggling with debt tended to be middle-aged, living in rented accommodation, employed and living on their own.

Credit card and personal loans are the most common reason why for Scots to visit Citizens Advice Bureaux over debt, CAS said.

However, more than 13 per cent of debt problems relate to council tax arrears, 10 per cent to rent arrears and 8 per cent to utility bills.

In 2011, there was a 6 per cent increase in people seeking advice in CAS over debt – a total of 143,556 individual cases.

Nearly 60 per cent of people seeking help with debt are aged between 35 and 59, while 52 per cent are single, separated, divorced or widowed, and 56 per cent are living in rented homes.

Although unemployed people are prone to falling into debt, they make up less than a quarter of the number of Scots who visited Citizens Advice for debt problems last year.

Scots who are separated and those with children were more likely to seek help over their financial problems.

Susan McPhee, acting chief executive of CAS, said the number of court actions and enforcement issues brought to bureaux also increased last year, suggesting that creditors were now more prepared to take formal action to recover debts.

“The individual cases we deal with are all unique, but the general pattern is very clear,” said Ms McPhee. “Incomes are falling while prices have risen, and many people are simply unable to cope with the cost of living.

“They feel they have no option but to borrow money, and many of them turn to lenders, who charge massive rates of interest.

“The people we see at CAS are of course those who have realised they have a problem and have admitted they need help. We know that there are many others who are aware of their debts, but are too afraid or ashamed to tackle them.

“It is very worrying to think that there is yet a third category, who are not even aware of the debt problems they are heading towards.”

The UK advice charity that runs the National Debtline, the Money Advice Trust, has also announced that fuel bills are a growing problem for British households.

The number of calls relating to fuel bills has increased from 1,212 in 2004 to 27,012 last year. In 2011, concern over fuel bills made up 13.7 per cent of all calls to the helpline.

Joanna Elson, chief executive of the Money Advice Trust, said: “Increasing energy costs mean most of us have to pay increasing attention to how much gas or electricity we use and whether or not we have the right tariff.

“It is a serious problem in this country that so many people will be wondering whether they can afford to boil a kettle or turn on the heating.

“The cost of heating and powering a home takes up much more of our income than it did six or seven years ago. There will be expensive gas and electricity bills dropping on to doormats across the country this month, and these bills must be treated as a priority, as gas and electricity companies can cut off your supply in a few weeks if you don’t pay them. No court is involved in this decision.”