Debt consolidation may be preferred by squeezed consumers

Britons have found their spending power has been squeezed yet further, making life harder for those who are in debt.

This was the conclusion of the latest Lloyds TSB Spending Power Report, which stated that when inflation and pay rates were taken into account, the typical consumer had £113 a year less to spend in February this year than they did 12 months before.

Such developments include a 6.2 per cent rise in spending on essentials, the highest in the survey's history.

However, while this is going on, people are still looking to pay off their debt at a greater rate than in the past, the study noted.

In the year to March 2012, spending on debt repayment rose by 1.3 per cent, despite a series of monthly falls in the back end of 2011 and the level of repayment is now at its highest since the bank began undertaking its Spending Power Reports.

This may suggest many people have decided that instead of stretching themselves to pay for expensive items, they are focusing on essentials and perhaps including in this their debt repayments.

Credit Action's figures have also suggested that consumers are reducing their non-mortgage debt, although its latest statistics – for February 2012 – indicated that the average household unsecured debt dropped by just £3 to £8,002.

Those who do manage to pay off debt can enjoy the potential benefits later on of being able to spend more money in the future as the economy improves.

Commenting on the overall struggles faced by individuals and families, the bank's chief economist Patrick Foley said: "Contrary to expectations at the start of the year, the squeeze on consumers is not yet beginning to ease. Although overall inflation declined in the five months to March, prices of essentials are rising at an increasing rate, whilst at the same time growth in incomes has slowed."

By James Francis