The number of families struggling with serious debt problems has increased by 28% only two years, according to a new report.
Research by the Trade Union Congress (TUC) found that the number of households with problem debt increased by 700,000 between 2012 and 2014.
The report, Britain in the Red, shows that 3.2 million households were “over-debted” in 2014 compared to 2.5 million in 2012. The shocking figure equates to one in eight of all UK households.
Young people, the self-employed and low-income families have been hardest hit by debt problems, defined as having to spend 25% or more of gross income on unsecured debt repayments; such as credit card debts, loans and overdrafts. It does not include mortgage or rent repayments.
According to the TUC’s report, a shocking 1.6 million households spend 40% of their income on debt repayments, with low-income families accounting for majority (1.1 million) of these households.
The report also reveals:
- In 2012 just 2% of 18-34 year-olds with any form of unsecured borrowing were over-indebted, but by 2014 this had risen to 10%. Credit card, personal and payday loans, overdrafts and store cards were the main factor behind the increase in problem debt not student loans.
- In 2012, 6% of self-employed workers with credit commitments were in serious debt. But by 2014 this had nearly tripled to 17%.
- The number of low-income families with problem debt shot up from 9% in 2012 to 16% in 2014.
- People who took out pay day loans in 2014 spent, on average, 30% of their income repaying them – up from 12% in 2012.
- In 2014 households with store cards spent 21% of their income repaying them – up from 9% in 2012.
TUC and Unison says economic recovery has failed to reduce debt burden for many families, blaming stagnant wages for increasing the number of households forced to borrow to make ends meet.
And they warn that forthcoming interest rate rises will worsen the debt problems faced by millions of struggling families.
They argue that although households overall borrowed less and paid back debts more quickly after the economic crisis, “debt-to-income ratios have remained very high as a result of real wages falling between 2007 and 2014”.
This, they claim, is “the longest fall in living standards since records began in the 1850s”.
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.
“We need a wages-led recovery that works for everyone not another debt-fuelled bubble.”
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.
“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 pay day loans just to get through the month is not a sustainable route for our economy.”
The above article is from Welfare Weekly