Family debt soars by nearly half in a year

Family debts like credit cards, overdrafts, personal loans and store cards have soared by almost half in a year – with the average household owing almost £8,000. 

Inflation, the increase in VAT and low interest rates have combined to leave family debts 48% higher than 12 months ago at a record £7,944, says financial firm Av iva.

At the same time, average household income has increased by just 7% to £2,066 in the same period.

The result is families are sinking further in to debt because they do not have the cash to clear them, says Av iva.

In real terms, total unsecured debt for every family is a third of their net income.

Housing is the largest monthly expense at 20% of their typical monthly income, followed by food (10%) and debt repayment (9%).

The trend is to cut back spending by looking for cheaper brands rather than to stop spending completely.

One in five of families are not spending money on personal goods, while 30% say that they do not spend on entertainment, days out or holidays, and 42% spend nothing on leisure goods.

The big concerns for families are the rising cost of living (62%), losing their jobs (46%), and the cost of unexpected expenses (41%). 

Aviva’s Louise Colley said: “Families are concerned by the rising cost of living and unemployment. While average incomes have increased over the past year, the prices of essential goods and services have also increased, meaning that families are struggling to keep up. 

“Many appear to have acclimatised to this economic environment by shopping around and seeking to minimise their spending in certain areas. However, at the same time there are still a worrying number of families with insufficient savings or large debts.”

Rather than struggling with debt, families can take advice about a financial management plan, debt relief order, IVA (individual voluntary arrangement) or bankruptcy.

Each offers a different way to manage debt, with a professional advisor helping to tailor a plan depending on a family’s personal financial circumstances.