Five million households in debt to energy suppliers

The number of households currently in debt to energy suppliers skyrocketed in 2012, with more than a million more people now in arrears than 12 months previously, according to uSwitch.

Over five million households (20 per cent) are now in debt to their energy provider, compared to under four million (14 per cent) last year.

In total, consumers owe an estimated £637 million, which is £159 million more than last year. One in four of those in debt (41 per cent) are behind on payments even more, while just 9 per cent owe less.

The independent price comparison and switching service noted the average amount owed to suppliers has actually fallen by £8 to £123 following the price cuts that occurred in early 2012. However, the rate hikes found over the winter months and the coldest March on record could see the average energy debt rise back up again as people struggle to find the money to pay their bills.

Astonishingly, the average household energy bill is now £1,353 a year, which is almost £100 more than a year ago and £831 more than at the start of 2004. As households struggle to make ends meet, these increases are putting heavy pressure on their budgets.

With the cost of living going up and income levels not rising alongside them, people are becoming unable to pay bills and are falling into more debt as a result. Individuals can pay energy bills with their credit card but will then end up in even more debt as a result of high interest rates.

The research found just over two in ten (22 per cent) of those in debt to their energy supplier are hoping it will reduce naturally over time. However, the same number of people (22 per cent) intend to pay off all their debt with a lump sum, while almost half (45 per cent) plan to increase their direct debit payments to cover it.

One in ten (eight per cent) are looking to agree a repayment plan with their supplier, while two per cent expect to implement a prepayment meter, which is a more expensive way to pay for energy.

Director of consumer policy at uSwitch Ann Robinson said: “The soaring number of households in debt to energy suppliers is a clear indication of the pressure people are coming under just to meet the cost of their basic bills.”

Ms Robinson advised people to get in contact with their energy supplier to discuss their options and to consider paying by direct debit as many offer discounts through this method.

“It also spreads the cost of energy use evenly throughout the year, so that households can avoid the burden of heavy winter bills,” Ms Robinson added.

Of course adding more money to monthly direct debit payments means less will be available to spend on other things. Several benefits are also being reduced meaning the strain on people’s finances could be set to worsen.

People who need to free up money for daily living expenses, while paying off debts, could potentially benefit from a debt consolidation loan, spreading the repayments out across a specific length of time.

By Amy White

Find out more about money management on the ClearDebt blog.