Many UK families dangerously close to financial ruin

By Marianne Curphey

Mortgages, loans and other debts dominate the finances of millions of households across the country, according to a new report. The Financial Inclusion Centre has found that many families are on the brink of financial trouble and are finding it hard to pay for essential household bills.

Troubling times
The report estimates that 1.8 million households (8.9%) across Great Britain spend more than 25% of their income on unsecured debt repayments, with the highest proportion to be found in the North East, North West and Yorkshire. financial-ruin

It also found that 1.6 million households (7.9%) spent more than half of their income on total (including secured) debt repayments.

Meanwhile, the number of people seeking debt help from the Consumer Credit Counselling Service (CCCS) more than doubled between 2005 and 2010 (an increase of 113%). Scotland, Wales and the North of England were the worst affected.

The most vulnerable
More than 6 million households are "financially vulnerable," according to the report. That means they are either already in debt or teetering on the brink of going into debt because they can barely make ends meet.

Households that are most vulnerable include: 

  • 2 million on low incomes (with an annual income of less than £13,500)
  • 4.3 million with no or low savings (savings under £1,000)
  • 2.2 million mortgagees (who are already in arrears or who say they struggle to pay their mortgages)
  • 2 million renters (who are already in rent arrears or struggling to pay their rents)
  • 600,000 lone-parent families
  • 1.1 million unemployed

In a tumultuous economy, many of these at-risk families won't be able to weather the storm. Everything from changes in food prices to fluctuations in interest rates could push them over the edge. Yet unemployment is an even bigger threat, according to Mick McAteer, director of the Financial Inclusion Centre.

"What is more worrying is the changes in the labour market which mean that households who relied on two incomes may be badly affected if one person loses their job," McAteer says. "A lot of people are only just keeping their head above water, and a relatively small change could send their finances over the edge."

The government's austerity measures (cuts being made to reduce the deficit) will likely also take a toll -- especially on families in the northern parts of the country, according to McAteer.

 "People have a greater reliance on public sector jobs in those regions," McAteer says. "In addition, although London has the highest average income in the country, there are some London boroughs where conditions are as bad, if not worse, than the north," he said.

Struggling families face yet another danger, according to McAteer -- those who seek to profit from their struggles.

"Another concern is the increasing number of payday loans, because these companies are targeting the most disadvantaged areas and most vulnerable communities," McAteer says. "Consumer groups are in a race to protect consumers from these types of loans."

Tips for weathering the storm
For families who find themselves in dire financial difficulties, it's vital to be proactive about debt says Una Farrell, media relations manager at the Consumer Credit Counselling Service (CCCS).

"Don't bury your head in the sand," Farrell says. "Try to face up to your financial difficulties."

 Here are Farrell's top tips for taking control of your debt:

  • Don't use credit to pay for day-to-day expenses.
  • Avoid payday loans, which tend to have high interest rates. Those interest rates make these loans difficult to pay back, and those who get in the habit of using them for everyday essentials can easily find themselves in trouble.
  • Look at your spending and money issues, and think about ways to cut back.
  • Seek help from a debt charity that will be able to give advice and help you negotiate more effectively with your creditors, mortgage company and utility providers.
See related: Brits plan to reduce personal debts; Fall in household debt no cause for celebration

Published: 16 February 2012