One quarter of very low-income households behind on bills or debt repayment
One in four very-low income households are struggling to pay bills or debt, with 10 per cent spending more than a quarter of their salary on credit card repayments, a report has found.
Data from the Institute for Fiscal Studies (IFS) showed one-sixth of the poorest households in Britain were in arrears on repayments and bills.
A further 10 per cent were spending at least a quarter of their monthly income on unsecured debts, such as credit cards and payday loans.
The IFS says their data shows debt was a “real problem” for a “significant minority” of low-income workers.
The author of the report, David Sturrock explained: “Debt looks like a real problem for a significant minority of those on low incomes, who are not keeping up with bills and/or spending high fractions of their disposable income on debt repayment. Headline numbers are no guide to the scale of ‘problem debt’: distinguishing between debts that are entirely appropriate and those that look unmanageable is crucial.”
There was some good news – researchers found most (60 per cent) of unsecured debt was with households who had enough income to pay it off.
Around half of the UK’s households have some sort of unsecured consumer debt, such as a credit card or payday loan.
Almost half of this is loans from banks and other financial institutions (43 per cent), with credit and store card debt (25 per cent) and hire purchase debt (21 per cent) the next most significant.
However, half of the households with these debts had the financial assets needed to pay them off.
Debt problems tended to more persistent for low income households.
Four out of every 10 of the poorest households were spending more than a quarter of their income managing debt in 2010-12.
The IFS found them still struggling with those same debts two years later.