Tackling your debts

Over 3 million UK households are in problem debt

Posted 30 August 2016

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New research shows that a high number of households in the UK are in problem debt.

Are you and your family struggling to afford everything you need to pay for on top of your debt repayments? New research suggests that more and more households are struggling to repay everything that they owe and rely on credit to cover their day-to-day expenses. 

The research from TUC (The national trade union body in the UK) shows that 3.2 million households across the country are in problem debt and 1.6 million households are in extreme debt. If a household spends more than 25% of its income on unsecured debts (mortgages aren’t included), this is classed as problem debt. If a household pays out 40% or more of its income, it’s classed as being in extreme debt. 

The working poor

This research again highlights the idea of the ‘working poor’ – people who are in work but still struggle to stay afloat financially. According to the research, problem debt is growing fast amongst this group of people.

Further research shows that real wages (when you take into account what you can actually buy with the money you’re paid) have actually fallen in the last few years. Real wages fell in the UK by 10.4% between the years 2007 and 2015 according to the Organisation for Economic Co-operation and Development (OECD). 

So it seems that this problem has been caused because people are still trying to repay debts, when the cost of living has risen and wages have not. The combination of these factors can leave working families worse off and unable to stay on top of all their outgoings. 

What can be done about it?

The General Secretary of TUC, Frances O’Grady, has called for the Government to focus on higher wages in their economic plan. She suggested that if wages rose year-on-year and the national minimum wage was higher, it could help ease the strain felt by a significant number of families up and down the country. 

Other experts in the field of finance and debt are calling for creditors to freeze interest and charges and stop legal action for six months when they know someone has sought debt advice. This idea may give people the time they need to seek proper advice and get their finances straight without the fear and worry of legal action and their debts mounting up.

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What can you do if you’re already in trouble with your debts?

As you can see from the research, you’re certainly not alone if debt is becoming a problem in your household. But there is something you can do about it – and the sooner you act, the better. 

Make sure you create a really great budget for you and your family. Your budget should outline everything you’ve got coming in and everything you’ve got going out. Of course, the aim is to create a budget which allows you to afford all your repayments and still shows that you’ve got more coming in than going out. 

If you’ve looked at your budget and there’s no way to achieve this with your income – even if you cut back in certain areas – then it’s time to seek outside help with your debts. Our advisors are fully trained debt experts who can tell you exactly what sorts of options are available to you. There are debt solutions designed to lower your repayments or in some cases suspend them altogether. 

You can also get free help from the Money Advice Service and various debt charities – just make sure that whatever help you get is professional and you understand your options. And don’t forget to keep your creditors informed if you’re going to miss any payments as they may be able to put a plan a place that makes it easier for you to afford your repayments.

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.