Average household spends £216 on monthly debt repayments

The average household spends £216 on monthly debt repayments, excluding the mortgage, according to research by Hargreaves Lansdown.

Among the top 5% of earners, this rises to £384 and £1,065.

The data also showed that those with mortgages spend an average of £748 on top of this. Almost one in ten households (8%) are in arrears. Among the lowest fifth of earners, this rises to 25%. The research also found that 17% of people are concerned about their debt position.

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said, “Credit card debt has climbed back above pre-pandemic levels. The flurry of repayments during lockdown saw tens of billions of pounds wiped off our debts, but as soon as we were released, we started spending again. Now we’re back to carrying even more debt than before. Rising debts are costing us dear, so if you can beat your debt habits, there’s serious money to be made.

“In January this year, credit card debts finally rose above their levels in February 2019, just before lockdown. That wasn’t the highest they had been this decade – that position was hit in May 2019, when we’d borrowed £72.9 billion. In February this year, debts rose above this high – to £73.2 billion.

“In the interim, we’ve seen interest rates rise significantly. And while the market is expecting more rate cuts this year, average credit card deals are always dramatically higher than the Bank of England rate. They’re currently well ahead of their pre-pandemic levels, at an average of 21.82%. It means that although some of the squeeze on our finances has started to ease elsewhere in our budgets, households are still under pressure when it comes to debt. It’s hardly surprising that almost one in five people are concerned about their debt position, and people on lower incomes are falling into arrears.

“The more we earn, the more we tend to borrow, so higher earners are bearing the biggest debt burdens – the HL Savings & Resilience Barometer found that the top fifth of earners repay £384 each month. However, despite having smaller payments, tighter budgets can make debt repayments harder to manage for lower earners. The fifth of people on the lowest incomes will need to stretch to afford repayments of £62 a month. And this is all in addition to any mortgage repayments. These average £748 for those who have a mortgage, rising to £804 for those aged 40-44. For those who have remortgaged while rates have been so high, bills have risen significantly, and the Barometer found that those who have remortgaged since rates started to rise are paying an average of £815.

“Borrowing means higher interest rates are working against us, so we’re paying more for every penny we borrow. The miracle of compounding is also turned against us, because you’re paying interest on debts you’ve accrued because of previous interest. If we can pay our debts down and build our savings and investments, we can turn both of these things around, so they work in our favour.

“Freeing up £216 to save each month at an average savings rate of 3% could build £13,964 in five years, while saving £384 at 3% could build £24,824 in five years. Investing in a stocks and shares ISA instead for ten years with an average return of 5% could build £33,541 or £59,628. So you’re not having to run to stand still, you’re gaining some serious ground.

“Paying off debts and building instead isn’t always easy, but unless you have problem debts, it’s doable. Draw up a budget and work out how you can cut unnecessary spending. You can direct this additional money into paying down your debts with the highest interest rate first. It’s a good idea to set up a direct debit for this, so it happens without you having to remember to do the right thing each month. As these debts fall, you’ll be spending less on interest and more on repayments.”