Personal debt levels remain threat to financial wellbeing of households

28th February 2024

In spite of a minor decrease in the last month of £62 in the total average amount of debt held by UK adults, average personal debt remains almost exactly equal to one year’s average earnings at 99.9%. In the year to December 2023, outstanding credit card debt increased by 9.2% (£5.8 billion), with the average interest rate on credit card lending standing at 24%, 18.75% above the Bank of England base rate.

Meanwhile, 51% of working-age people in the UK live in households which have less than 3 months’ wages available in savings and 25% of lone parents say they are paying ‘unaffordable rents’, classed as over a third of their income. These challenges mean that even where food and energy costs may have fallen, or at least their rate of increase has slowed, people are still unable to save due to the ongoing burden of their debts.

Other essential costs present further problems and while petrol and diesel costs decreased again in January 2024, the cost of car insurance premiums have seen major increases, with the average policy cost in Q4 2023 standing at £995, a 58% increase on the previous year and almost twice the equivalent cost in 2020. Mortgage debt is also causing issues, with 58% of mortgage debt equalling three or more times the borrowers’ income. Unsurprisingly, this has led to a relative rise in mortgage possession claims and orders which, while down in Q4 2023 compared to 2022, still equates to 5.7 repossessions per day.

Citizens Advice report that they dealt with 48,680 debt issues in January 2024, including making 22,500 referrals to food banks.

Like most people, we acknowledge the clear reality that in order to achieve your financial goals in life, the majority of us will have to take on debt to do so. This is a pragmatic, considered choice and works perfectly well when that level of debt, and repaying it, is sustainable and manageable. But it is when that debt becomes unsustainable and unmanageable, which can happen to someone for all sorts of reasons, that we truly start to see people struggling.

Unmanageable debt causes a self-perpetuating cycle with a person’s finances, leading many to think there’s no way out, or to make unwise financial decisions out of desperation, all of which see their Financial Well-being worsen. But we believe that there is no scenario when someone is ‘beyond’ help and that the right time to seek help is always as soon as possible. We would always encourage anyone concerned to look into the many sources of reliable and free support that are available. Ignoring the situation is never the right choice and one of many reasons why we aim each day to encourage people to talk about their money, to not see their finances as a scary thing to be secretive about, but something to be open and honest about with those you love and trust.

Michelle Highman, Chief Executive at The Money Charity