Concerns raised over unsecured debts of low-income groups


The high levels of unsecured debts, including credit cards, personal loans and overdrafts, held by people with low incomes are of major concern, a national debt charity has said.


According to the Consumer Credit Counselling Service (CCCS), the average client with an annual income of £13,500 or less has unsecured debts amounting to £12,870.

Among this group of low-income households, the unsecured debt to income ratio is typically 199% of their annual income.

This means it is particularly hard for them to reduce their credit card balances and the overall level of their debts, and the situation is likely to be particularly grave for those with high-interest credit cards or loans.

"Unmanageable debt is a problem across all income groups, but those on low incomes are particularly financially vulnerable," said CCCS external affairs director Delroy Corinaldi in a statement.

"I am also concerned about the use of credit by many on low incomes and fear that many are using it to pay for day-to-day living expenses, which is an unhealthy use of credit," added Mr Corinaldi.

Experts say that consumers with high levels of debt should look at ways to reduce the overall cost of their borrowing. One way could be to compare credit cards and shift their outstanding debts on to a card that offers a lengthy 0% introductory rate on balance transfers. However, consumers should be aware that this strategy only works if a consumer's credit is good enough to qualify for the best offers.

As for those who feel they must rely on credit cards to cover day-to-day costs, experts recommend that they use a credit card with the lowest possible APR -- preferably one that offers 0% on purchases for an extended period.

See related: Study: Debt boosts young people's self esteem; Brits' savings efforts hampered by unsecured debt

Published: 27 July 2011