Desperate days for those facing a debt-fuelled Christmas

I love Christmas. But it can turn out to be a financial nightmare for millions who end up overspending. Even before this weekend, almost six million people had already borrowed money to pay for Christmas this year, according to R3, the insolvency trade body.

That's an alarming increase of almost fifty per cent on the same period last year. In fact more than seven million people fear they won't have enough money to comfortably pay their bills at the end of the month due to their Christmas spending. For many, the pain of paying for Christmas will carry on for months.

But for some, getting into debt now can be the first step towards the nightmare of isolvency. In fact in March, R3 research discovered that a third of insolvencies were caused by spending at Christmas. Official insolvency figures for the year won't be published until sometime in 2011, but they are likely to show an increase over last year's record levels of people becoming bankrupt or taking out an IVA, according to Mark Sands, national head of bankruptcy at RSM Tenon.

"Total personal insolvencies in 2010 are likely to exceed last year's record total of 134,132," he predicts. It's easy to accept such figures and shrug them aside as simply being a sad part of the harsh times we currently live in. We know that things will get tougher because of the austerity measures and cutbacks imposed by the Coalition Government.

Shelter this week warned that Britain could be on the brink of a rise in homelessness after a YouGov survey found the equivalent of 835,000 households admit to being in arrears with their rent or mortgage, compared to just 405,000 households last October.

The survey also showed that increasing numbers of people are fighting to stay afloat, as 3.7 million households said they constantly struggle to pay their rent or mortgage, an increase of almost double since October last year. Tough times indeed.

One man for whom it has all got too much is a 63-year old Cambridge man who was hauled before his local county court this week. At a bankruptcy hearing in June this year he resorted to trying to set fire to a court, after being told that he could lose his house.

He told a fresh hearing this week that his actions were a protest at the legal system that led to his home being threatened. But his desperate measures failed to save his home and simply led him to be charged with arson and assault among a list of other crimes. The net result of his debt problems could be a prison sentence.

What the story teaches us is that the tragedy of someone losing their home can be devastating. So we shouldn't simply shrug at the prospect of record insolvency figures and hundreds of thousands at risk of being thrown out of their property.

I hope that in 2011 the Government reverses its plans to penalise the poor. There's fat chance of that happening, I know. But I remain hopeful that the season of goodwill can, at least, be extended to people who end up struggling next year because of Christmas over-spending.

That goodwill has to start with banks and credit card companies who should, at least while times are so hard for so many, put a cap on the profits they make from high interest and late payment fees. As we know from experience, many people end up in an out-of-control debt spiral because they can't afford to repay debt bloated by ever-increasing interest and charges.

The Government has consistently fudged dealing with excessive charges, letting banks continue to get away with high overdrafts and borrowing rates. But introducing a simple cap on credit rates – on the total amount a firm can charge – could help many people to avoid falling into desperate debt.

The Labour Co-operative MP Stella Creasy managed to get the Government to consider curbing rates on the high cost of credit for Britain's three million poorest borrowers. She has targeted doorstep lenders and payday loan companies that charge outrageous rates for short-term borrowing.

I hope her campaign proves successful, but next I hope the campaign turns its attention to banks. My dream would be to report in 12 months' time that insolvency figures are down and that the banks have turned out to be responsible lenders.