Brits are taking on an increasing amount of unsecured debt, according to MoneySuperMarket.
Individuals in debt now owe as much as £6,086 on average, with collective debt totalling £192 billion.
With 62% of UK adults admitting they currently have some form of unsecured borrowing (such as a credit card, personal loan or overdraft), personal debt has grown year on year. In 2015, consumers held debts of £5,898 on average each, while in 2014 the average amount owed was £4,412 – an increase of 38% in just two years.
The issue is especially severe for Londoners, who owe £16,380 on average each, almost four times more than the £4,179 average among other UK regions. Those in debt in the East Midlands have borrowed the next biggest amount on unsecured credit, owing £6,312 each, followed by the Welsh who owe £5,135 each. At the other end of the scale, those in debt in the East of England owe £3,322 each.
46% of UK adults owe on a credit card, while 18% are in debt through their overdraft and 11% have taken out a personal loan. 10% have borrowed money from their friends or family.
This situation looks likely to worsen in 2016, with more than a quarter (28%) of those with existing debt saying they owe more this year than last. On average, these consumers individually owe £1,475 more now. 23% owe the same amount, while a fifth (19%) actually owe less.
56% of Londoners with debt owe more than last year, as do more than a quarter of those in Scotland and in the East of England (28% respectively).
Many are expecting to take on even more debt to cope this year. Overall, 15% of those in debt state they will try not to use any more unsecured credit, but may have no other choice if they face unexpected expenses. An additional 11% already find it difficult to live within their means, so will need to use credit to fund the shortfall and a further 10% will be forced to use credit simply to cover their essential monthly outgoings.
Kevin Pratt from MoneySuperMarket said: “The growth in consumer confidence has led to higher spending and – inevitably – more borrowing. Personal debt has shot up by 38% in the last two years and many of those that already owe money are expecting to borrow yet more in 2016.”
On average, those that owe money think it will take them a year and a half to pay off their current debt, with Londoners expecting to take twice as long (three years). Only a third (36%) of all borrowers think they’ll manage to pay off their debts within a month, with 27% expecting to do it within a year and 12% anticipating it will take between two to five years. Furthermore, those in debt estimate they will have to set aside almost a fifth (17%) of their salary to settle their bill, rising to 27% of Londoners’ salaries.
27% of those with unsecured debt say they use credit to buy luxury items, as opposed to everyday essentials. Meanwhile 16% use credit to buy items for another person (partner, child or non-family member). 7% buy non-essential items whether or not they can afford to do so and this almost doubles to 13% among 18 to 34 year olds.
Only 34% use credit purely for the necessities of daily life such as utility bills and travel costs.
However, the report shows people are making some inroads into tackling their debt. Those in debt aged between 18 to 34 have seen the amount decrease year on year, from an average of £10,058 in 2015 to £8,547 this year, as have the over 55s, from £2,528 in 2015 to £2,337 currently. However, 35 to 54 year olds currently owe £6,082 on average, -an increase from £5,211 in 2015.
Consumers are being proactive in a bid to tackle their debt. 30% are managing to pay it off in full at the end of the month and another 30% pay what they can each month to try and clear the deficit as quickly as possible. A fifth (20%) are sticking to a monthly budget, while 19% have set up a standing order so the money they owe is automatically taken out of their bank account. Consumers who were making luxury purchases are giving them up (13%) and are even stopping going out to socialise (12%), in order to get their finances back in shape.
