More than one in five low income households have ‘problem debt’

More than one in five people on low incomes have problem debt compared with just one in 20 of those at the top of the income scale as rising prices, frozen benefits and a wage squeeze put pressure on household incomes, according to a report into household poverty from the Institute for Fiscal Studies.

Around half of households had some unsecured consumer debt, with 10 per cent of households holding more than £10,000 of such debt, the study found. Those with problem debt in the bottom 20 per cent of incomes have loan repayments of almost half their monthly income.

The report said: “There are many situations in which holding debt can be perfectly sensible for a household, and indeed can help improve its living standards. A key challenge for policy is to identify with some degree of precision when debt is, and is not, a problem.”

Helen Barnard, head of analysis at the independent Joseph Rowntree Foundation, which supported the report, said: “More than one in five people on low incomes have problem debt compared with just one in 20 of those at the top of the income scale … on average, those with problem debt in the bottom fifth spend £457 a month on paying back their debts, out of an income of £1,012.

“Low income household are facing a difficult 2018, with rising prices, frozen benefits and a wage squeeze all putting further pressure on household incomes. The government, regulators and lenders need to not only look at increasing access to affordable credit, but also at the pressures that can lead families to take on debt in order to get by.”