Tackling your debts

Family borrowing at highest level on record

Posted 27 March 2015

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Unsecured borrowing rose to £239bn in 2014, raising concerns that families might be taking on more borrowing than they can handle.

The average UK family could owe almost £10,000 in unsecured loans and other borrowing by the end of 2016, according to a new report by accountants PwC.


The Precious Plastic: How Britons Fell Back in Love With Borrowing report found that this represents a record level of borrowing for British families in cash terms, showing that some of us could be returning to the way we managed our money before the financial crisis. In 2014, unsecured credit soared by 9% to £239bn … or almost £9,000 per household. That includes credit cards, overdrafts, personal loans, student loans, as well as any other forms of borrowing that aren’t secured against a property or vehicle.

Return to problem debts

The £239bn in consumers’ total unsecured debt was made up of £4.2bn in credit card borrowing, £6.4bn from personal loans, overdrafts and other sources such as payday loans, as well as £9.1bn in student loans. It means that consumers borrowed more in unsecured debts than in any other year that the report was previously carried out, breaking the previous peak of £234bn in 2008, just before the financial crisis.


During the credit crunch, households cut back on their borrowing and paid back some of what they owed, with unsecured debts falling to a low of £206bn in 2011, or just over £7,800 owed per family. Now it seems that borrowers’ confidence is returning, thanks to the upturn in the economy in recent months. The report found that just 14% of respondents say they’re struggling with repaying their debts, with nearly two-thirds of respondents (65%) agreeing that they can cope with their current repayments. Thanks to an even more positive economic outlook for 2015, including a rise in employment and customer confidence, families are expected to take on even bigger unsecured debts this year … a total of £248bn or £10,000 per household.

The cost of debt

According to the PwC report, nearly one in five (18%) respondents admit to being worried about how they’ll meet their debt repayments in the future, down from 26% last year. This shows that borrowers are becoming more confident in their ability to repay their debts, meaning they are more likely to find their borrowing manageable.


However, the Bank of England’s base interest rate has been at an all-time low of 0.5% for five years now, which could be one reason why people are finding it easy to manage their debt repayments. The PwC report warns that consumers could be too complacent, and if the interest rate rises towards the end of 2015 or in 2016, they could start to struggle to meet their payments. If the interest rate is increased by 2%, families will need to find an extra £1,000 to cover all of their unsecured borrowing, as many people haven’t budgeted for an increase in their repayments. This, coupled with the current 0% inflation rate meaning that wages are unlikely to rise very much, could mean that debts will become unaffordable for those who haven’t prepared for an interest rate rise.


Just 12% of respondents say they use credit to pay for any essentials like rent or grocery shopping, although 20% of those aged 35-44 say the same. People who are currently covering bills with their credit card or overdraft could have a real problem when the base interest rate rises, as the increase in cost of their debt repayments will mean they’ll be under even more pressure to meet their repayments.


It’s unlikely that interest rates will suddenly be put up by 1% or 2% overnight, as any increases in the base rate will probably be much more gradual. However, it could still prove problematic if you’re managing unsecured debts and are only just able to afford the monthly payments.


If you’re struggling to meet the cost of growing debts, you don’t have to cope with this on your own. Just by getting some independent advice from a debt expert could help you feel a lot better about your problems, and you may be able to start getting your finances back on the right track.

by Christine Walsh

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