Millions face financial woe as debt levels soar
A quarter of families are cutting back on food costs by not ordering a regular take-away, or by buying basic ranges in the supermarket, according to the Aviva report. However, they are still buying takeaway coffee.
The average family now owes nearly £10,000, as hard-pressed Britons go deep into debt to survive the recession, a report warns.
The combination of near-stagnant wages and a rising cost of living has seen the average household debt – excluding mortgages – climb by three-fifths in the last year.
And families are increasingly resorting to more expensive types of credit to make ends meet.
The Family Finances Report from insurer Aviva reveals that the average family now owes £2,266 on credit cards, £1,895 on loans and £1,650 on overdrafts.
They are also indebted to hire purchase companies (£749), doorstep lenders (£478), friends and family (£701), store cards (£913) and other informal lenders such as payday loan firms (£702).
Not including mortgages, average debt levels have soared 58 per cent over the past 12 months to £9,314. A year ago the average family owed just £5,878.
Una Farrell, of debt charity the Consumer Credit Counselling Service, said the new figures point to future financial woes for millions as the recession bites harder.
"The findings are not surprising as many millions of households are struggling to make ends meet and are turning to credit to plug the gap," she said.
"This is leading them into a spiral of unmanageable debt, as they then struggle to repay their debt as well as pay for basic living expenses.
"The big concern is that many are turning to high cost credit which becomes incredibly expensive, very quickly."
The increasing squeeze on finances is forcing vulnerable families to turn to payday lenders, which charge exorbitant interest rates – up to 4,000 per cent APR – for short-term loans.
In many cases people discover they can't afford to repay the debt in time, leaving them facing spiralling interest charges and late-payment fees on a disastrous debt spiral.
The report does contain a glimmer of good news. In spite of the recession, families have seen their monthly incomes nudge very slightly ahead of inflation, climbing 4 per cent since May 2011, compared to the latest CPI inflation rate of 3 per cent.
Monthly family incomes have hit £2,150, from £2,062 a year ago. However that figure is boosted by more people being forced to take on extra work.
Almost one in eight families – 12 per cent – report that the primary earner has taken on a second job.
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