Debt problem ‘predates financial crisis’

Much of the current discussion about the problems of personal debt concerns those being built up by consumers now as they struggle to make ends meet in a time of austerity and falling real incomes.

But the root of the problem for many might date back several years, to before the financial crisis.

A study by the National Institute for Economic and Social Research has indicated that those on middle or lower incomes were the most prone to going into debt during the decade between 1997 and 2007.

It found that while spending grew faster than income for all groups, the increase was higher for those on the lowest incomes, the gap being 40 per cent for the bottom ten per cent by 2007.

Therefore, those least able to sustain and maintain their payments were the ones taking on the most new debt, with mortgage payments less likely to account for their liabilities.

Commenting on the situation, chief executive of the Resolution Foundation Gavin Kelly said: "We all know by now that the debt position of households grew starkly worse in the run up to the financial crisis. But what this report exposes is the dramatic difference for lower income households who were way outspending their incomes by 2007."

While many people might have taken actions that have greatly increased their debt in recent times – such as taking out payday loans – the greater availability of credit before the middle of 2007 may mean credit card debt is the big problem for some.

Those still trying to pay this off and struggling to do so might benefit from a debt management plan, while and individual voluntary arrangement could be considered by those owing £15,000 or more.

Director of CashQuestions.com Annie Shaw recently gave strong advice to consumers against using cards or payday loans to fund everyday living.

She remarked: "I would send a warning to anybody who is thinking of doing it and beg them not to do it."

By Joe White