This is according to debt charity, Consumer Credit Counselling Service (CCCS). Drawing on its analysis of 470,000 households with debt problems, published today in its Statistical Yearbook for 2010, the charity is concerned that families will be particularly vulnerable.
At best, the majority of these households are faced with stagnating or falling incomes and rising costs. At worst they face job loss and unemployment. Everyone is trying to service relatively high levels of debts, and in many cases the situation is simply unsustainable. As a result, a substantial proportion of CCCS clients continue to be unable to meet the costs of everyday living. Almost half of clients ascribe their problems to job loss or reduced income from work.
Homeowners have higher levels of debt than renters. On average, a client who owns their own home has over £30,000 in unsecured debts on top of their mortgage. A 2% rise in interest rates would lead to a £307 increase in monthly mortgage payments for clients across the country.
Stagnating or falling incomes at a time of marked increases in the costs of everyday living combined with the impact of imminent benefit changes on welfare dependent clients (55% receive benefits) is already affecting people's ability to repay their debts. Last year, almost half of clients gave loss of job or income as a reason for their debts, while a third lacked the means to cover basic living costs let alone repay their debts.
Families are particularly vulnerable: last year households with dependent children needed an additional £650 a month just to cover everyday living costs compared to those without. The problem escalates with increasing numbers of children: families with more than three are on average £45 short of the money they need to live each month. At the same time, changes in higher rate tax thresholds and the lowering of eligibility for tax credits are likely to spread the pain to middle-earning families, many of whom will also be hit by increases in interest rates.
Commenting on the Yearbook's findings, CCCS chairman Lord Stevenson said: "The picture is undoubtedly bleak and it seems likely that many more families, including better-off ones, will be increasingly prone to over-indebtedness in the months ahead.
“It is also not a uniform picture across the country: public sector cuts in terms of jobs, spending and benefits will weigh disproportionately on certain groups of people. And as our new Debt View programme shows, the incidence of unmanageable debt bears down harder on specific parts of the country, such as London and Yorkshire.
"We hope that the unique and compelling data revealed in this Yearbook about what is actually happening in struggling households will assist policy makers to understand better the impact of their policies, as well as helping us to tailor our services to those who need it most."
