Personal Debt Levels Increasing

10th July 2013

According to the latest Aviva Family Finances report the average debt of UK households has increased by nearly 40% over the past year.

The report draws data from 18,000 families around the UK. Average family debt has reached £12,834 from last year’s figure of £9,314.

Of these average debts:

  • £2,011 is owed to family or friends.

  • £2,006 is owed on credit cards.

  • £1,959 is owed on personal loans.

5% of households are said to be using payday loans while a further 3% are making use of pawnbrokers. Which? (the consumer organisation) has recently reported that as many as a million households are making use of payday loans.

By contrast the Aviva report also reveals that average household incomes and disposable income have both increased during the same period. The average family now has more than £1,000 more spending power than they did a year ago.

Some of this extra spending power is being directed towards saving. Investing or saving accounts for £96 per family per month, a 20% increase compared to last year.

It appears to the adviser team at Trust-Deed.co.uk that the average figures presented may conceal a reality that different types of households are currently subject to very different financial changes in circumstances.

  • It would appear that certain types of households may be enjoying significant increases in income. Some may be increasing their saving as a result of this, while others may feel more confident about taking on further borrowings in this financial environment.

  • Many households that aren’t enjoying an increase in income may well continue to be financially hard-pressed. Some may be making modest savings as an insurance policy against things getting worse, while others may have had to make further use of existing credit sources or have reached out to family or friends for assistance with their living costs.

  • There also appear to be a group of households that have been financially at-risk for an extended period, that aren’t enjoying income increases, and for whom their finances have become increasingly chaotic. This might be evidenced by the increased use of high-cost credit including payday lenders and pawnbrokers.

The first group identified are unlikely to get into financial difficulty unless they become overcommitted via further borrowing or suffer an income shock in the future. Households where debt is increasing but income has remained static (or reduced) appear to face significant financial risks in the future unless their circumstances improve. Using credit to maintain unaffordable living costs cannot usually end well. Using high-cost credit for the same purpose may bring forward the point at which household debts have to be tackled as a result of the situation reaching a crunch point.

In such circumstances a range of options may be available. Scottish residents facing debt difficulty might consider debt management plans, debt arrangement schemes, Scottish trust deeds or sequestration (bankruptcy).

Given that many families aren’t enjoying income growth, but their debts are increasing relatively quickly, it would appear that the increased future use of protected trust deeds and other similar debt measures is likely in future months and years.

If you’re struggling with debt please click here to contact our qualified adviser team or visit our forum for online information and guidance.

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Wylie & Bisset Grant Thornton

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