Those receiving benefits often find their income inadequate to pay their bills and turn to lenders as a 'sticking plaster' for the difficulties - which only leads to a spiral of long-term debt and poverty, the National Association of Citizens' Advice Bureaux says.
The report, The Cost of Living, is based on a wide-ranging study of the problems faced by some of the 1,782,000 clients who sought advice on consumer and debt matters in the 12 months to last April.
It also found that those who get into debt which they cannot repay are often faced with additional stress and expense as creditors employ Draconian measures to recover their money.
The study paints a bleak picture of hardship endured by households on benefit as they are forced to make impossible choices in the struggle to find money to pay essential bills.
To ease the burden, the association is demanding the introduction of means-tested benefits to cover the cost of mortgage interest and water charges, and the re- organisation of the Social Fund to ensure that money reaches vulnerable members of the community.
But along with any improvements in the levels of benefits, it is vital that families are protected from the activities of lenders and the high cost of credit.
The association reports that the introduction of a code of practice, Good Banking, adopted by the industry in March this year, brought no immediate reduction in the volume of complaints against banks.
Families who turned to credit companies in an effort to bridge the gap between living costs and income often found they were forced to pay exorbitant levels of interest since they had no other means of borrowing money.
It highlights one unemployed client in north London who borrowed pounds 250 at an annual interest rate of 972.6 per cent. Trading standards officers advised that action for extortionate credit rates under the Consumer Credit Act was unlikely to succeed, leading the association to conclude that the definition should be changed.
Those unable to service such debts invariably find themselves the subject of the unwelcome attentions of unscrupulous private bailiffs who use methods to recover property which the association says is unacceptable.
Citizens' Advice Bureaux receive about 78,000 complaints each year about bailiffs, and some clients say they have been threatened to the point where they seek other credit in order to hold on to their property.
Ann Abraham, the CAB chief executive, said: 'An increasing number of our clients are finding they simply cannot make ends meet, and have no choice but to resort to credit.
'We are asking the Government to ensure that levels of benefit are adequate, that safety nets such as the Social Fund work for the people who really need them, and credit industry practices are closely controlled.'
The Cost of Living; Social Policy Section, NACAB, 115-123 Pentonville Road, London N1 9LZ; pounds 6.50