Focus on debt repayments hurts savings

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Savings levels suffered during 2010 as consumers focused on repaying record amounts of debt.

Britons paid off credit card and loan debt totalling £12.08bn during the year, the highest level since the research was started in 2005, according to professional advice website unbiased.co.uk

People repaid a total of £2.21bn more of non-mortgage debt than they borrowed during the final three months of the year, the seventh consecutive month during which repayments outstripped new lending.

The group said the contraction in unsecured debt was likely to have been caused by a combination of people wanting to reduce their borrowings in the face of economic uncertainty, as well as the fact that the tight lending criteria being used by banks was restricting the amount of new debt consumers could take on.

But the amount of money people are setting aside suffered as a result of their focus on debt, with savings levels falling from £20bn during the first quarter of 2010 to just £15bn in the final quarter – the lowest level since the first three months of 2009.

Overall, Britons repaid 14p of debt for every £1 they saved during the three months to the end of December, slightly less than the 16p repaid for every £1 saved during the third quarter.