Millions are paying more than 40% of their income on debt repayments

 

The report blames a drop in wages for plunging around 1.6 million families into extreme indebtedness as the value of real UK wages went down by 10.4% between 2007 and 2015.

 

Of the 1.6 million people in extreme debt, the study claims 1.2 million of them have a household income below £30,000. The lowest income households had the highest amount of debt in comparison to their income at a ratio of 22% in 2015, which was seven times as high as those in the highest income group. 

 

Further to this, 3.2 million people are in 'problem debt’, characterised by spending 25% of their income on unsecured debt repayments.

 

The authors of the report believe that low Bank of England base interest rates have reduced the overall numerical amount of interest payments that households are required to make, however, the debt burden has increased because households have reduced income growth from which to make their interest payments.

 

Debt Advice Foundation CEO David Rodger said;

 

“The report highlights real concerns with the long term sustainability of a consumer debt-led economic recovery.

 

“The inevitable result of eroding real wages is an increase in consumer borrowing to bridge disposable income gaps and a commensurate increase in debt servicing costs.  

 

“As real wages continue to fall, this problem will only continue to worsen.  Whilst personal borrowing has continued to trend upwards towards the record levels seen prior to the 2008 global economic recession, there will of course come a point where lenders feel the need to manage exposure and tighten their belts, which will inevitably result in a sharp increase in demand for the UK’s already stretched not-for-profit debt advice services.

 

"If you are worried aboout debt, get in touch with a not-for-profit debt charity who will look at all your available options.”