Unsecured debt falls for third year in a row

British families are struggling under £8,000-worth of debt – even after three years’ of paying off loans and plastic cards.

Research published today shows that the average household reduced its average unsecured debt, excluding mortgages, by £355 last year, the third year in a row that the figure has fallen.

But bean counters at PricewaterhouseCooper warned that Brits are still struggling with some of the highest levels of debt in the world.

Simon Westcott, PwC’s Financial Services practice director said: “Three years of austerity by UK consumers has only made a small dent in the total levels of borrowing.

“In addition to this, there is a growing reluctance to borrow in the future and a marked deterioration in confidence about meeting repayments, particularly among 18 to 24 year olds consumers where less than half of those surveyed believing they will be able to repay their debts.”

Difficulty repaying credit cards are by far the largest type of debt problem experienced by debt charity the Consumer Credit Counselling Service.

Last year 43 per cent of problem debt reported to the charity was credit card debt and people who turned to the CCCS for help had run up an average £11,323 on plastic.

Problems start when people start using plastic cards for essentials, rather than for convenience, warned Una Farrell of the Consumer Credit Counselling Service.

“The best way to use a credit card is to pay off the balance every month,” she said. “People quickly end up with a debt problem if they only pay the minimum amount each month.

“It means that interest is building up and debt will take much longer to pay off, as well as costing more.”

Some 26.2m plastic cards purchases are made every day, totalling a whopping £1.252bn.

But the February debt statistics published by money education charity Credit Action revealed that plastic cards are only part of the growing debt problem.

The charity’s figures show that the average household now owes £55,823 if you include mortgages.

It means the interest paid daily by people in the UK now tops £171m.

Chillingly, Mr Westcott warned that last-resort lending, such as payday loans, is becoming more mainstream as people struggle to cope financially.

“We are seeing increasing evidence of consumers seeking alternatives such as so called pay-day loans,” he said.

Payday loan firms have been heavily criticised for encourage vulnerable people into debt they can’t afford. But Mr Westcott said his research showed that better-off people are turning to the short-term lenders.

“The convenience and innovation offered by alternative lenders are encouraging a broader and more prosperous selection of consumers to choose their services over banks,” he said.

The next step is for payday lenders to start offering more traditional financial services, said Mr Westcott. “As these providers become more conventional, we are likely to see them venture further into the mainstream market with their own credit-card, longer term loan products or even current accounts.”

The good news if that happens is that they will be forced to toe the line and adopt better lending practices, such as restricting roll-over loans, which lead people quickly into unmanageable debt.