Brits' savings efforts hampered by unsecured debt

By UK CreditCards.com

Families are working hard to put money aside in savings, but rising levels of debt are counteracting many people's good intentions, according to new research by pensions provider Aviva. The company's latest Family Finances Report indicates that while family savings have risen significantly since January 2011, so too have levels of unsecured debt, particularly among households with children.

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Here, CreditCards.com takes a look at the main findings in the report and the picture it paints of the UK's family finances.

Savings on the increase ...
British families are trying hard to build up their savings and Aviva's report suggests that the average family now has £1,163 in savings and investments, excluding pensions and property. This compares with an average savings balance of just £849 in January 2011 and indicates that households are recognising the importance of having a nest egg to fall back on. The research also reveals that the proportion of families with no savings has dropped from 33% to 28% since January, and that the percentage of households who do not save each month has fallen from 40% to 37%.

  ... along with unsecured debt
However, families could be saving even more if they were not contending with unsecured debts, such as credit card bills, personal loan repayments and overdrafts. According to Aviva, the average unsecured debt has increased from £5,360 at the start of the year to £5,878, while families with two or more children have seen their average unsecured debt rise by 18.1% and those with one child by 23.8%. Approximately 10% of families' total monthly income now goes on debt repayments.

Paul Goodwin, head of pensions marketing at Aviva, welcomes the fact that families are saving more than they were at the start of the year. However, he warns, "The fact that many have higher unsecured debts and have seen an almost blanket increase in day-to-day living costs is deeply concerning. UK families are worried about the future, with almost two-thirds anxious about any increases in the cost of basic necessities over the next six months. This research really serves to highlight the precarious balancing act that many face today as they look to meet their financial obligations and provide their families with some type of financial security."

Balance transfer card could be beneficial
One step that families with large credit card balances could take to help dig themselves out of debt is to take out a new credit card with a 0% introductory period on balance transfers. Examples include the Barclaycard Platinum with Balance Transfer card, which currently offers 0% on balance transfers for 20 months and £10 off the 3.2% balance transfer fee for balances of £2,500 or more, and the Virgin Money card, with its 18-month 0% introductory period and 2.89% balance transfer fee. By taking out either of these cards, or one of the many other balance transfer cards available in the UK, families can spread the cost of their repayments over the duration of the introductory period without accruing interest and adding to their overall debt.

See related: How terrible savings rates can help you reduce your credit card debt; Should savings be applied to credit card debt? 

Published: 20 May 2011