Families ‘must seek to become debt free’

The threat of higher interest payments in the future is a major reason for families to start trying to pay down their debts now, it has been claimed.

A recent PricewaterhouseCoopers report claimed interest base rates will lead to the average family paying up to £1,800 more per year by 2015 if the present level of indebtedness remains.

Describing this as a “stark warning” to consumers, chartered financial planner and managing director of Informed Choice Martin Bamford said it is important for households to set a target of becoming debt free.

He advised this means cutting down on their spending and ensuring the most expensive debts are targeted first.

Mr Bamford added: “The only way to avoid taking out loans and credit cards is to map out your budget, consistently spend less than you earn and create an emergency fund to pay for unforeseen expenditure, without having to resort to unsecured borrowing.”

He noted this would be “uncomfortable” for many consumers and households in the near term as they take some difficult decisions about how to spend reduced budgets, but said the eventual result would be a much better standard of living without the burden of debts.

Mr Bamford said recent evidence has backed suggestions consumers are starting to take action and further data backing this view was provided last week by the Bank of England.

Its latest Trends in Lending report said the level of consumer credit only rose slightly in September and October 2010, with an overall drop in November.

By James Francis