Britons poised to fork out £93billion in interest payments in just one year

Millions of Britons already struggle with household bills
12 April 2012

Britain's interest repayments have soared by £12.7billion to a record £93billion a year - raising fears that many families' finances are spinning out of control.

The figures suggest millions of Britons already struggling with rising household bills could be left unable to cope with the mounting cost of their debts.

Nearly one in four admits that repayments on their current debts are unmanageable, according to a study.

Meanwhile, 9.5million have hit their borrowing limit on a credit card, overdraft or loan over the last six months.

Family finances are likely to be stretched even further because of heavy spending before Christmas and during the January sales.

In total, Britain is carrying £1.35trillion in debt, including credit cards, personal loans, overdrafts and mortgages.

Overall, the research found that the average household has now amassed unsecured debts of £4,281, made up of £2,684 owed through loans, £1,204 on credit cards and £393 on an overdraft.

Households now pay an average of £3,744 in interest on debt, including their mortgage, each year, £517 more than they paid last year.

A series of interest rate rises increased the pressure of families in 2007, before the Bank of England cut the base rate by a quarter point in December. But many credit card and mortgage providers have not passed the reduction on to their customers and the situation is being made worse by the global credit crunch.

Banks and building societies are taking a much tougher line on which customers they will accept and how much they will lend.

The research reveals that almost four in ten - 38 per cent - of those who applied for a credit card in the past six months were turned down.

Two in ten - 19 per cent - of applicants for a personal loan were also rejected.

The study, by the personal finance website uSwitch.com, also found that six per cent of credit card holders have had their limit cut.

Mike Naylor, of uSwitch, said those with big debts need to take urgent steps to protect themselves. He suggested substantial savings on interest repayments are possible by consolidating debts into a single unsecured loan.

"If consumers don't act now to sort out their finances, they could find themselves caught in a spiral of debt with no way out," he added.

"People have enjoyed easy access to cheap credit for quite some time, but for some, the party really could be over.

"The base rate reduction is a step in the right direction, but it could be too little, too late for people in real financial difficulties."

Citizen's Advice currently help more than 6,600 Britons a day with debt problems.

According to uSwitch, this represents a 25 per cent increase on 2006 and "indicates that debt problems for UK consumers could be getting out of control".

The accounting firm KPMG said a record total of more than 130,000 individuals are likely to go bust in 2008.

They will either declare themselves bankrupt or enter an Individual Voluntary Arrangement to repay their debts.

This compares with 111,000 becoming insolvent in the 12 months to September 2007.

Mark Sands of KPMG said: "Those in difficulty will find that their options are becoming limited - formal insolvency will, for many, be the only way out."

There are signs that some finance firms are looking to cash in on the debts.

For example, the company behind the Marbles credit card, which has some 338,000 customers, has unveiled huge increases in interest rates.

Holders will see the average interest on purchases climb by four percentage points while the figure for cash advances will rise by six per cent.

As a result, some customers will be charged as much as 26.9 per cent on purchases and 33.9 per cent for cash.

Damon Gibbons, of the campaign group Debt on Our Doorstep, said many borrowers are becoming "credit dependent" and "tied into a spiral of debt".

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