Families lived on the never-never by borrowing well beyond their means to fund spending for at least a decade before the credit crunch, according to an economic think tank.
Figures show spending outpaced growth in incomes, with the 10% of earners with the lowest incomes paying out 40% more than their total income, says the Resolution Foundation.
Unfettered spending has left families struggling to meet their bills - and research shows borrowing increased the amount owed on mortgages, credit cards and loans and contributed little or nothing to reducing their debts.
Even better-off households found themselves in financial problems. Although their income increased by a third (33%), their spending was up 46%.
Researchers believe that families are now living with debt that accrued before the credit crunch and cannot afford to keep pace with their living costs, repay what they owe and save for their retirement.
Gavin Kelly, the chief executive of the Resolution Foundation, said: “We know that household debt grew starkly worse in the run up to the financial crisis. What this report exposes is the dramatic difference for lower income households who were way outspending their incomes already by 2007.”
The report also highlights that easy availability of credit contributed to the amount of debt families could build while their income potential did not match their ability to repay what they owed.
Much of the borrowing was against credit cards, overdrafts and personal loans. Remortgaging as house prices increased was also unlocked extra cash.
Borrowers who cannot make day to day bill payments because of credit debts can consider a financial management plan or even an individual voluntary arrangement (IVA) or bankruptcy.
A financial management plan is an informal arrangement with a bank or financial institution to reschedule borrowings over a longer term.
An IVA or bankruptcy are insolvency solutions that require formal arrangements with creditors.
--- ENDS ---
Notes to editors:
- Money Debt and Credit is one of the UK's fastest growing financial solution companies.
- The company was founded in 2006 on the belief that every client has the right to appropriate financial advice. Since then we've gone from strength to strength and have helped thousands of people with a variety of financial solutions.
- We offer a range of services including Financial Management Plans, IVA s, Loans, Mortgages, Full & Final Settlements, Bankruptcy, Investments and Pensions.
- Specialties: IVA s, Financial Management Plans, Loans, Mortgages, Trust Deeds, Full and Final Settlements, Bankruptcy
For more information or debt advice contact:
Money Debt and Credit
45 Clarendon Road, Watford, WD17 1SZ
Tel. 0800 16 999 46