Families ‘paying £200 a month in interest as debt noose tightens’

A “debt noose” is tightening around households, with families paying almost £200 a month just in interest, a report warned.

London and the North West have seen the highest demand for counselling, while Yorkshire and the Humber and Wales are areas with some of the fastest rises in demand for help.

The “interest burden” recorded for the last three months of 2011 equates to almost a quarter (24 per cent) of incomes after regular bills are paid, debt charity the Consumer Credit Counselling Service (CCCS) said.

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This share rose by 0.1 per cent from the third quarter of last year as living cost hikes outstripped wage increases, its Consumer Debt and Money Report said.

Older people will be increasingly affected by debt problems, the study said, highlighting a rising demand for debt advice from late-stage professionals aged between 45 and 59.

“There has been a gradual rise in counselling demand from this group, with its share rising from 22.8 per cent in 2005 to 31.7 per cent by (the end of) 2011,” the report said.

Demand for debt advice will peak in 2014, indicating the “lasting distress caused by the financial crisis”. The charity said UK households’ determination to pay down their debts has been slowing as disposable income has been swallowed up by high inflation, with expensive petrol, utilities and housing costs and deteriorating employment conditions.

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The report said: “Interest payments are a heavy burden on household finances. With payment necessary regardless of economic circumstances, they pose a major threat to the solvency of many families.

“As a major spending component that must be met on time, the need to service debt is posing a significant challenge in the current economic downturn when household heads lose their jobs and income sources dry up.”

The report predicted rising unemployment, but a “positive effect” of the weak economy for indebted households will be several years of low interest rates.

The ratio of one pound in every four of disposable income spent on servicing debts increased to one in three earlier in the financial crisis as households piled on debt and then faced a deteriorating labour market.